DoCoMo + Aircel + MTS determined to cut into market – Freebies + Incentives to Flow

I must first step back a bit from my stand that new operators had a weak business case [cash flow wise, it appears so, who cares]. However, looking at the recent developments, they are going to disrupt the business case [at least in short to medium term] of even the big fat guys like Airtel and Vodafone 🙂

New entrants – MTS [Shyam Sistema], Tata DoCoMo, Aircel, Etisalat DB, Telnor, S Tel Batelco, Datacom are entering the Indian market through strategic stakes in the new licensees and have committed investments of ~$4bn so far. They are at a structural disadvantage as their spectrum is less efficient but Shared infrastructure model will lower their capex. Etisalat, S Tel, Datacom and Telnor’s launch is at least 3 quarters away while MTS, DoCoMo, and Reliance GSM have started cutting into the market place.

Tata DoCoMo’s per second billing has gained traction and is very likely that other new operators will launch similar offers or disrupt the market place further with more sweetened offer. In short term, a revenue loss of 10-15% is inevitable for incumbents.

With gradually expanding network coverage, their strategy is to focus on urban markets, leveraging their empty network and innovative schemes as a customer acquisition tool. Here is a quick look at current business strategies of new entrants.

Aircel: backed by Maxis of Malaysia has no funding constraints and we have been tipped that the company is a strong contender to offer not just plain Wireless but bouquet of services [ broadband and 3g] Focusing on offering value added services to attract subscribers via mobile internet; Introduce tariff plans that encourage subscribers to talk more.

Tata DoCoMo:once again their is no funding nor telecom infrastructure constraint. Added the highest subscribers in circles where it launched operations in the month of July-09. Per-second billing likely to some users. [Will this reduce the Missed Call Consumer behavior ?]If the company ends up acquiring moderate usage subscribers, incumbents have to re-think their tariff strategy. However, if low usage marginal subscribers lo on to the platform, plan is likely to be withdrawn.

MTS – Sistema Shyam:The company pitches on FREE On-Net minutes and cheap calling rates to attract more customers to their platform. However, MTS is on the CDMA platform ditched by Tata and Reliance. Now that Qualcomm has bowed down to the demands of Indian consumer [handset interoperability], offers some hopes for MTS.

Incumbents Paralyzed:
Can you recall in RCom and Airtel’s [includes Idea and Vodafone as they are part of Indus] Conference Call, they said that they have significantly reduced their CAPEX. Analysts believe that it is because of margin pressure and hence lower CAPEX guidance. [I am not sure]

Incumbents will be forced to offer some freebies [On-Net calling] and sweeten offers to existing customers or you know Indian customers are very quick to switch to who offers them the best deal.

Managements have always thought that initial freebies will be withdrawn after a limited period, however new offerings like FREE calls for 999 days is surely making them hold a mid-night meting in their war room 🙂

Finally, adding to the woes of incumbents, Pioneer of Indian Retail, Mr. Kishore Biyani wants to retail wholesale Wireless Minutes at his Big Bazaar and other stores. Future Group is in talks with Tata Teleservices [possibly others as well]

Mergers and Acquisition which can lead to consolidation is at least 3 years away. Until then good and expanding network coverage is a must to sustain. New entrants can’t do business just on new and churn customers fighting each other. They have to re-write business rules on how they will retain users and grow profitable at least in 3 years which shall then become a classic case study for management graduates from Stanford to IIM.