Entry into the Indian
Richard Branson’s Virgin Group and Tata
Telecom Arena: An
analysis of barriers, trends
and opportunities
Natasha Sachdeva, Akshat Shukla, DMS, IIT-
Delhi
Introduction: Need and purpose
The Indian Telecommunication industry is
the sunshine sector of India’s current
portfolio that registered growth despite the
recession. With about 464.82 million phone
connections (June 2009)[1], it is the third
largest telecommunication network in the
world and the second largest in terms of
number of wireless connections.
Since the advent of favorable policies by
TRAI in 2004, telecommunication activities
have gained momentum in India, “The first
National Telecom Policy was announced in
1994 with major thrust on universal service
and qualitative improvement in telecom
services besides starting private sector
participation in basic telephone services.”[2]
Efforts have been made by both
governmental and non-governmental
platforms to enhance infrastructure to
further boost growth. The idea is to help
modern telecommunication technologies
serve the various segments of India’s
culturally diverse society, and to supplement
the growth of the other sectors as well.
With an overall tele-density increase to
36.98% in March 2009[3], there is immense
future for any player in this industry if it
plays it right.
And yet, there have been just two major
players rolling out their services, this side of
the millennium– Reliance in 2004 and
Virgin Mobile (under a collaboration of
Teleservices) in 2008. While Reliance is an
established player, competing with its
CDMA services, it is being given tough
competition by Tata Teleservices (reentering
this domain) with further momentum
coming with Reliance’s (now ADAG) entry.
Reliance having established itself more than
five years ago is on a universally firm
footing thus practically, only Virgin mobile
can be considered a new entrant that rolled
out its services. While there are other
potentially major groups e.g., Unitech
Wireless (now acquired by Telenor[4]) which
have accquired operational license, they
have not yet rolled out their services.
Compared to the kind of growth envisaged
by the majors, the show put on in terms of
new entries is thus quite dismal. This paper
probes reasons for the trend and explores
ways on how the phenomenon can be
reversed vis-à-vis entry of new service
providers.
Systematic Barriers
Barriers to Entry
The present scenario with government
restrictions of 3-5 players per circle, an
oligarchy of sorts has developed, and there
is a possibility that the incumbents can cartel
against a new entrant.
Economies of Scale
India has the lowest Average Revenue per
User (ARPU) in the world, and as such it is
very difficult for a new entrant to offer the
services existing players are giving and
break even within a reasonable span of time.
Moreover it is less demanding for an
incumbent to expand, with the revenues due
to existing high volumes to bank upon.
Product Differentiation
There is no real difference in the products
offered by the various major players of
telecom. While earlier services used to differ
between players, depending upon the
number of towers it had and so forth, even
that factor seems to be diluting with the
major competitors placing there towers in
close proximity or even sharing towers and
related infrastructure.[5]
Capital Requirements
While only huge market majors have
acquired license to operate, many of them
overrun their cost outlays there itself and
consequently fail to deliver value, while at
the same time restricting space for new
entrants.[6]
Switching Costs
Mobile Virtual Network Operator (MVNO)
service which allows number portability
across service providers has not been rolled
out. It could have helped new entrants,
because currently, the reason for not
switching over by customers is not just cost,
but also change of number.
Access to Distribution Channels
This is a usual deterrent in most industries
and while telecom is no exception, it is
usually not as severely afflicted by this
problem since retail of sim cards and setting
up of franchisee is not very difficult.
Government Policy
In India government’s telecom policies are
usually hostile to new entries, with the
incumbents already having the muscle and
politicians backing, “The backdrop of the
super rich and already big
telecommunications companies interfering
and influencing the political and
bureaucratic process is ever hanging on the
Indian markets (including the telecom
market). This is not an uncommon
phenomenon in any other global market, but
especially so in the Indian market as the
government itself sides with the needs of its
own political interests.”[7] New entrants are
made to pay a discouragingly heavy price
for just the licenses, and therefore the
abysmal roll out rate in the industry.
The silver lining
Despite all the listed disadvantages, if an
entrant manages to create a distinct identity
for itself in the market, it is bound to reap
rich dividends, way beyond breaking even,
and this inspite of existing competition and
systematic/bureaucratic bottlenecks,
primarily because the sector is a prerequisite
for almost all other industries/sectors to
grow, considering the primal need of
effective dissemination of information for
corporate growth.
An additionally lucrative area is the rural
market with 70% population and 50% latent
purchasing power, an opportunity
abundantly instanced by Bangladesh’s
Grameen Phone concept. [8]
In our opinion, a marketing strategy clearly
enunciating product/service offerings and
aimed at niche segments to actualize
differentiation can play a pivotal role for a
prospective telecom player. An effective
strategy in terms of a market plan and
precise marketing mix, can thus facilitate
entry into the world’s fastest growing
market.
Segmentation
A new player should start with a niche
market. With many pan-India players
catering to anyone and everyone, specialized
products and services might just do the trick.
Some of the available options are:
(a) High Technology - High Income Users.
(b) Users interested in low-cost international
calls – Lycatel and Lebara have successfully
employed such a strategy in Europe. [9]
(c)Demographic analysis based.
(d)Consumer occupation based - targeting
specific professional groups.
Targeting
Product and Pricing: Segment-wise
proposed product/service profile
The product and associated pricing are
intrinsically related and hence are analyzed
co-jointly:
Leveraging handset-service combine
While segmenting the customer profile we
notice that new entrants are able to target
better if they use specialized handsets, for
instance they could get in exclusive tie-ups
with existing handset majors and leverage
their brand acceptance to venture into new
territories.
High Technology - High Income Users
Various value added services and high end
services are used by this group apart from
conventional call usage. Thus here for
example handsets could be developed to
give services such as one-touch push keys to
access e-mail, favorite news provider
content, internet with direct routing to
homepage etc. These could be clubbed
together with a package of combined benefit
on say internet download and international
and national calling.
These are premium services and could be
provided at premium rates, with the
combination of a few services packaged
together, more attractively priced.
Frequent international callers
A separate handset need not be provided but
they could to be provided a scheme for
international SMSs along with international
calls.
Demographics based
Demographics based tactics perhaps provide
the most logical approach for a new entrant.
A keen insight can be gained by studying the
tactics of Virgin Mobile which though yet to
rise to prominence has created a niche for
itself.
Virgin has specifically targeted the youth
with their catchy advertisements, attractive
options like increased balance on incoming
calls, interesting downloads like music and
games which are carefully selected and
whose itinerary is regularly provided to its
users, et al. They have carefully brought out
their plans that are a combination of Prepaid
and Postpaid. While prepaids are
traditionally more popular amongst the
group, now if they have an overrun, they
could take up a plan that could serve the
emergencies at a slightly higher cost of calls.
Also they earlier had their handsets specific
for their purpose, being the first ones to
employ sim card based CDMA network.
Though not a top gun, Virgin has made
rapid inroads indicating the importance of
niche targeting complemented with
appropriate schemes/products.
Other Proposals
Age based
With significant ARPU and usage, teenagers
are increasingly becoming very significant
customers of the telecom industry. And it
would help to target them. Amongst teenage
girls for instance, cute looking cell phones in
girlie colors like pink and violet, with one
touch features of say Hannah Montana songs
or pictures downloads, style tips etc. might
do the trick. The comparable male clientele
on the other hand could be targeted with
sporty looking handsets with one push key
for similar say Harry Potter downloads,
racing games etc: These services could be
brought out at a premium for the entrant
with first mover advantage in the segment.
Similarly elderly clientele belonging to
upper middle class and higher income group
could be targeted by services settings such
as making caller tunes as prayers once in a
while etc: Similarly the generic lower costs
to a limited group of contact numbers if
belonging to the same network at lower
costs could be employed.
As a matter of fact we feel no service
provider has an explicit focus on the elderly
and thus a USP based on this approach will
greatly benefit brand perception across age
groups. A lower revenue collection from the
aged in such an instance offers more
valuable brand enhancement equity.
Gender based
To make a customer switch to their network
again targeted schemes are possible, female
customers for example could be provided a
beauty/cooking tip as a daily morning sms.
Similarly male customers could get news
brief around noon. While it is going to add
to the operator’s cost, because profile based
services are being provided, it would be
worthwhile since this is sure to catch the
fancy of the people.
Occupation Based Products
Here again specialized handsets/services
could come in handy. For example for
investors, stock brokers one push key
features to access stock market figures,
updated economic news, or links to online
trading site , along with security features
like advanced scrambling in their phone
features and the technology to carry it
securely over network could be provided.
For the students and young adults in general,
there could be further division between basic
utilities like voice call and sms users and the
others for whom higher end handsets with
one push key for connected gaming, and
attractive mms, sms, voice call, caller tunes,
and download from internet, with each high
end service claiming its due in terms of
price, or more attractive packages of the
various permutations and combinations of
the services could be provided. Standard
strategies like lower cost of calling and
messaging within network and closed user
groups could be employed to bring both
kinds of young users into the fold.
Promotion
Promotion and associated branding is
especially crucial in Indian telecom given
the intense competition and complexities of
the market. As a matter of fact, promotion
involves not just educating the masses but
also making them feel passionate about your
offerings. A case in point is Reliance
Infocomm, “Reliance Infocomm radically
redefined marketing models in India and
engaged homes and enterprises directly by
having the ability to deliver physical and
virtual products and services as part of one
system. Reliance Infocomm through its
aggressive, unconventional tactics changed
the rules of the mobile marketing game.”[7]
For a new entrant, multiple channels of
promotion could be used. In many cases
specialized handsets for the services, co-
branding could help. By being the idea
generators to the handset majors – they can
have a claim to the revenues from that end
too, or if not they can get low investment
promotion from them.
Other options like TV advertisements,
associating with popular shows, suitable
brand ambassadors, social networking sites,
blogs, print media – inclusive of children’s
comics, newspapers, business magazines et
al, all needs to be done to make one’s space
in an oligarchy that India telecom industry
is.
Positioning
The segmentation described earlier shows
the myriad customer/market segments in
existence. However it is important to note
that for the telecom sector, beyond brand,
feature or services, positioning is more
about catching he users fancy.
Thus, a successful positioning exercise
would involve establishing a strong cultural
or philosophical camaraderie with
customers, “After reasonably agreeing to the
fact that the important aspects in CRM are
relationship and how customers, on account
of their distinct behavior and personality,
differently and uniquely perceive a
relationship, it is also imperative to stress
the point that corporate communication is
the prime driver of any relationship. As the
leading Indian telecom brand AirTel shows
in its advertisements, communication is all
about expressing oneself.”[8]
However once a specific strategy has been
decided, the tactics should ensure that the
brand is able to achieve what it has set out
for. Similarly this aspect gains even keener
importance if the new entrant wishes to
enter a generic segment already crowded
with existing heavy-weights even when, the
existing services leave something to be
desired. Similarly another mistake could be
to go for a diffused positioning exercise
which leaves a confused imprint on the
customers’ mind. In fact entrants must strive
to discover what could excite its niche, and
surprise them, give them beyond their
imagination and zap them. In an
undifferentiated oligarchy, to us, it seems
only this could work.
It is more than apparent that the market
needs specialization with segments as well
defined as they could get, products
specialized for the markets, and selective
specialization where a sub-brand catering to
a niche with the parent brand catering to the
rest all have to be tried.
End note: Telecom in recession
In this scenario, if there are industries that
are bound to shine, they are health care and
telecom. And in telecom, new entrants to
have a real shoot in the growth rate have to
use the conditions well.
In a recession, when everything is not all
hunky dory more channels of
communication need to be opened. And as
traveling becomes a luxury in the tight
conditions, remote form of communications
is the salvage. Teleconferencing and
communication over phones is bound to
replace frequent traveling. And here the
entrants could tie up with various
companies; say starting from small software
consultancy firms that largely depend on
outsourced work. They could provide
attractive package-deals for corporate
purposes and rope in a firm’s employees as
part of the understanding. By providing
good services at affordable prices, word of
mouth could take them further. Reliance had
created a bang by coming with
40paise/minute call. Something on the same
line in terms of catching the user’s fancy
needs to be done to start with.
References
(1)Information Note to the Press (Press
Release No 61/2009), Telecom Regulatory
Authority of India, New Delhi, 6th August
2009,
http://www.trai.gov.in/WriteReadData/trai/u
pload/PressReleases/694/pr6aug09no61.pdf
(2)Telecom sector profile, Report No. CA
25 of 2009-10,CAG, http://www.cag.gov.in/
html/reports/commercial/2009_25CA/profile
.pdf
(3)Success Factors in the Diffusion of
Innovative Services: A Case Study Specific
to the Indian Telecom Context, Sangeeta
Sahney, Vinod Gupta School of
Management
Indian Institute of Technology Kharagpur,
http://www.knowledgetaiwan.org/ojs/index.
php/ijbi/article/viewFile/204/56
(4)Norway's Telenor buys Unitech's telecom
firm, BS Reporters, http://www.business-
standard.com/india/storypage.php?
autono=338737
(5) “Telecom Infrastructure Sharing:
Regulatory Enablers and Economic
Benefits,” by Louay Abou Chanab, Bahjat
El-Darwiche, Ghassan Hasbani and
Mohamad Mourad, Booz Allen Hamilton,
2007, http://www.booz.com/media/uploads/
Telecom-Infrastructure-Sharing.pdf
(6)Telecommunications reform in India,
Rafiq Dossani, India Review, 1557-3036,
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http://www.informaworld.com/smpp/ftinterf
ace?
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(7) Telecom Station, Perfect Telecom
Market, Vasu Reddy, President Optus
Technologies Inc (Chicago),
http://www.telecomindiaonline.com/telecom
-station-perfect-telecom-market-india.html
(8) Grameen Telecom’s Village Phone
Programme in Rural Bangladesh: a Multi-
Media Case Study, Dr. Don Richardson,
Ricardo Ramirez, Moinul Haq
TeleCommons Development Group
(TDG), http://www.tforum.org/mausklick/
background/Grameenfinalreport.pdf
(9) Entry and Innovation in Maturing
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Telecommunications, Ferdinand
Jaspers,William Hulsink,Jules Theewues,
Technology Analysis & Strategic
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March 2007, http://www1.fee.uva.nl/pp/bin/
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(10) Relaince Infocomm’ strategy and

impact on the Indian mobile
telecommunication scenario, Sangeeth
Varghese, Department of media and
communication,
http://www.lse.ac.uk/collections/media@lse/
pdf/Varghese%20paper%2031.01.06.PDF

(11) Establishing Successful Customer

Relationships Through Effective
Communication:

An Indian Perspective, K Sai Prasaad, http://

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