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Tata Tele - Can the tortoise catch up?
Surajeet Das Gupta |
May 08, 2004
It's known as the plodder of the mobile telecom world. It's the company that doesn't aggressively chase customers like its fast-moving rivals, that has played by the rules and hasn't gone on an expansion spree to become a pan-Indian player.
But Tata Teleservices Ltd has paid a big price for its slow-moving ways in the dog-eat-dog telecom world. The CDMA-based mobile and fixed wireless phone company has ended up at the bottom of the telecoms heap. With less than four per cent market share in the wireless telephony market, it lags behind the big boys like Bharti, Hutch, Idea (a GSM mobile provider in which the Tatas have a equity stake), BSNL and even BPL.
But the Tatas are now trying to make up for lost time and to catch up with the big boys. It has set itself an ambitious goal: it aims to hike its subscriber base from 2 million to 15 million by end-2005. That'll be a seven-fold rise.
And that's just for starters. In the next three years, TTSL hopes to grab over 20 per cent of the wireless market (which includes both mobile as well as wireless fixed phone services). Says Amit Bose, president, Tata Teleservices who joined after a stint at arch-rival Reliance Infocomm: "In 36 months we should be among the top three operators."
It could be a daunting task. That's why the Tatas are furiously rolling out new networks in over 12 new circles across the country that will give them a presence in 20 circles and towns. And they are expanding from only 50 cities to over a giant 600 cities by end September. The target is to have services up and running in as many as 1,000 cities by March 2005.
The bid to become a pan-India mobile player will be expensive. Tata Teleservices reckons that it will spend $2 billion to achieve its targets. It has already spent Rs 5,995 crore (Rs 59.95 billion) till March end this year -- funded by debt and equity raised according to a 1:1 ratio. In the third phase for which plans are being finalised the target is to roll out services in another 1,500 towns across the country. But no time has been fixed for the completion of that phase.
Does Tata Teleservices have a magic mantra to woo customers in the hugely competitive market? Don't forget it will be the sixth player in many circles and it will face well-entrenched rivals. Worse, even in the eight circles in which it operates, its market share is only 10 per cent. Bose says that in these circles the network capacity usage is as high as 90 per cent so getting more customers can only happen after the capacity is increased.
The company, however, believes it has a winning three-fold strategy to snare customers: it's planning a big push into data; then it's offering an array of new products for the mass market; also, it wants to position the company as a broadband wireless leader rather than just a telephony company. That means offering services like using the phone for the Internet.
So what's the data strategy? Taking a leaf out of rival Reliance Infocomm's gameplan the Tatas are also betting on data to bring in 20 per cent of revenues in the next few years. Also, it's optimistic about snaring customers because it's developing data applications tailor-made for different segments of the market. Says Bose: "The name of the game is market segmentation."
The company will, for instance, offer specialised applications geared for youth, women, the small scale-sector and even farmers. Farmers in rural India may be offered online mandi prices and weather report updates.
Importantly, to compete with Reliance Infocomm, TTSL is offering the cable as well as the software free of cost with every mobile and fixed wireless connection. A Tata Teleservices phone can be plugged into a laptop or PC and it will be possible to get onto the Net at faster speeds than on dial-ups. Bose says its competitors charge an extra Rs 1,200 for the cable.
Tata Teleservices may also move up the technology chain and offer EVDO (evolution data only) or EVDV (evolution data voice). These services are aimed at people on the move who deal with large quantities of data. Bose says it needs an incremental investment of about 10 per cent to 15 per cent to add on these services.
In the broadband space, TTSL is moving aggressively to ensure that wi-fi -- the wireless technology, which offers connectivity to the Net within a short distance -- becomes a viable model. The company plans to open up over 300 hot spots across the country where people can connect to the Internet without plugging in. By year end these will be at places like cafes, hotels, airports, restaurants amongst others.
But the Tatas are aware that the big numbers will come only from customers using mobile phones for voice. And this is where it must score over rivals. Agrees Bose: "Our philosophy is to offer more for the same price, only price cannot be the ultimate differentiator."
The company also has another weapon in its armoury. It will be the first to launch push-to-talk services. Put simply, that's SMS with voice.
Push-to-talk could be a winning proposition. Bose points out it expects to get more customers who communicate in regional languages and who won't be able to SMS in English. Push-to-talk will provide the perfect solution. Equally important, Bose reckons push-to-talk could be cheaper than SMS. The company believes one-third of its phones by end -2005 will enable this service.
That's not the only weapon in the Tata arsenal: it's hoping to launch pre-paid services by July so it can catch up with Reliance Infocomm. TTSL says over 85 per cent of its customers will be pre-paid users.
Then, the Tatas also hope to launch SIM card based phones by year-end or next year. That will be a huge change because customers now have to buy the phone from the company that activates it and thus find it tough to switch to another company. Bose says this will give customers freedom to choose handsets and make it easier to shift from one CDMA operator to another.
Will the expensive gamble pay off? Many analysts are sceptical about whether Tata Teleservices can catch up. Says a Tata watcher: "The gap between them and the leaders is huge. And their product has no USP. So they will be forced to play on price which could put them in financial trouble."
For instance, Push-to-talk will also be offered by Bharti in June. Similarly, Reliance has also announced EVDO services and is planning to launch SIM card based phones in the near future. TTSL had earlier pointed out that it hopes to make profit before tax in three years (lower than the earlier target of five years). But after the new expansion the company declined to divulge when it would make profits.
Also, the Tata expansion plan sounds big but it's nothing compared to what its rivals are planning. For instance Reliance Infocomm plans to expand coverage from 1,100 cities to 5,000 by March 2005. That will be five times what the Tatas will be offering.
Similarly, Bharti is moving from 1,100 cities to 2,300 cities by year-end. That's three times more than the Tatas. Reliance is also planning a capacity expansion to 40 million subscriber lines -- nearly three times more than the Tata expansion.
To catch up with its larger rivals Tata Teleservices will have to gain a large percentage of the new subscribers who come onto the market if they want to touch the magic number of 15 million subscribers by end 2005 because their current market share is minuscule.
Industry experts reckon the mobile wireless market will grow to about 80 million from the current 35 million. So, the Tatas must pick up about 25-27 per cent of the new subscribers to meet its targets. That's not easy since as much as 85 per cent of the new subscribers are being grabbed by the top three -- who aren't going to slow down signing up new customers.
Says a senior executive of an US multinational, which has dealt with the Tata group: "Their main problem is that they lack a clear focus. They were the only ones who could not decide which technology to back -- CDMA or GSM -- and wasted crucial time."
Bose defends the Tata strategy and says the company — unlike its competitors — did not want to break the rules. So it didn't offer full mobility or even SMS like Reliance Infocomm. Instead, it waited for the government to give the unified access licence allowing CDMA players to offer full mobility before taking the plunge.
Some analysts believe the Tatas can make it. Says Sanjay Mehta, head of telecom practice, at Ernst & Young: "Tata is a powerful brand and though they might have been slow initially -- they can leverage their brand, which stands for reliability and transparency amongst customers."
That's what the Tatas are banking on heavily. Bose hopes that brand strength together with its product offering will help the company dramatically reduce the churn of customers to other rivals. The target is to reduce it from 20 per cent to around 8 per cent over the long term.
Easy availability is a key to the company's new strategy. So it's expanding the distribution network steeply. The number of retail outlets stacking its products will climb 20 times from 5,000 to 200,000 by March 2005. Also, the Tatas are planning over 400 branded stores across India.Tata Teleservices will be spending heavily to make up for lost time. But will customers who have five strong brands to choose from give the company a chance to make a second call.
A guide to modern telephony
|Racing for growth|
A look at the expansion plans of some of the key telecom players
Tata Teleservices plans to expand its network from 50 cities and towns to 1,000 cities and towns by March 2005
Reliance Infocomm plans to expand from 1,100 cities and towns to 5,000 by March 2005
Bharti Televentures plans to expand from 1,100 cities and towns to 2,300 by year end
Hutch-Essar plans to expand from 578 cities and towns to 800 by year end in the existing circles. It also plans to cover over 658 cities in three new circles (Punjab, UP West and West Bengal) where it is launching its services soon
CDMA: CDMA or Code Division Multiple Access is a proprietary technology developed by US telecom giant Qualcomm. It's the technology that delivers mobile services in various parts of the world including the US, China and Korea.
CDMA is an alternative to Global System for Mobile (GSM) — the mobile technology that dominates the globe and which is most used in Europe and India. Qualcomm argues that CDMA offers data speeds, which GSM can never match. Inevitably, the GSM companies do not agree.
EVDO (Evolution data only): It is a mobile phone based on Qualcomm's CDMA technology on which customers can get Internet speeds of up to 2 mbps while on the move.
That is virtually over 10 to 20 times faster than what is offered on your existing general packet radio switching (GPRS) mobile phones which are based on GSM technology offered by companies like Bharti, Hutch, BPL amongst others. It is also known as the 3G range of phones.
EVDV (Evolution data voice): A mobile phone based on CDMA technology, it offers Internet data speeds between 3 to 4 mbps. It is primarily meant for business users and executives who need to deal with large quantities of data.
PTT (Push-to-talk phones): Currently, we punch in our SMS messages on our mobile phones. PTT allows customers to record short voice messages and send it off like an SMS by pressing a button.
The recipient will hear a beep when he or she gets the message. The person can then listen to it by pushing a button and can also reply to it.
Wi-fi: This technology enables laptop users to connect to the Internet within a limited radius (called a hotspot) without wires. This means that offices, for instance, can be turned into hotspots.
The technology is also being tested in places like hotels and airports. In the US, Starbucks is experimenting with the technology in some of its restaurants.
Users must have a special PC card that must be attached to the laptop, but today many companies are offering wi-fi enabled laptops based on Intel's chip. The technology involves an access point which is connected to a broadband cable connection. The hotspot is usually in a radius upto about 30 metres from the access point.