The Illogically costly 3G Auction Evidently has Strategic Implications for both Bharti and Reliance Communications. B&E does a Snapshot 'dummies guide' Competitive Analysis Primer on The Two
Bharti led in terms of payout at Rs,122.95 billion, whereas RCom’s payout was Rs.86 billion. Ravinder Taneja, former VP, Enterprise Business, Tata Teleservices and currently Senior VP, Sales & Operations, Head-end-In-The-Sky (HITS), WWIL, tells B&E that the prices were high, but adds, “If the government has taken three long years to announce 3G spectrum auctions, it is an opportunity for companies to invest in it for the long term. Spectrum is a scarce resource, so when it comes up, players don’t have any choice.” That’s especially true for incumbents, who have a lot to gain, and in this case, lose. The strategy has been to mostly take up 3G spectrum in their key circles, which would be a ploy to protect their high ARPU subscribers and improve revenue yield from them as well. According to Kedar Sohoni, President, Informate Mobile Intelligence, “The ‘low hanging fruit’ is going to be the operator’s own postpaid set of retail and enterprise users. They have the highest ARPU and capacity to pay.”
In that sense, Bharti, despite paying the most, looks like the one that would be most disappointed. A Macquarie report points out that “Bharti has not got 3G spectrum in nine circles which cumulatively contribute 31.6% to its overall wireless revenue.” RCom has taken up a mix of Metro and C circles, and its total revenue coverage (GSM +CDMA) in the circles it has won is estimated at 41% of its total (Angel Broking data). But Bharti has reasons to be optimistic. Airtel and Idea are likely to have the highest ROI followed by Vodafone, Tata & Reliance. Going by the data, metros will struggle on ROI, but the key markets that will determine future ROI are UP, Maharashtra, AP, Gujarat, Tamil Nadu and Karnataka. Apart from eastern UP, Maharashtra and Gujarat, Bharti has got all these key circles, but RCom hasn’t won any of them. However, in the 9 circles that Bharti didn't win, it is among the top three operators, and Goldman Sachs predicts in a report that it could face significant customer churn in those circles. RCom, meanwhile, has taken up circles like Punjab, Madhya Pradesh, Kerala, Orissa, West Bengal, et al; which are aligned particularly to its GSM circles.
The subscriber market for data will remain restricted to specific markets and not be uniform like voice. In terms of subscriber numbers, Bharti is at around 130.6 million users (COAI, April 2010), while RCom has crossed the 100 million mark fairly quickly; with subscriber numbers at 105.15 million (April 2010, COAI). ARPU data confirms that Bharti has more of a high value customer mix, a consequence of its pioneer advantage. That also means a better shot at 3G, which is more about high value customers in the initial phase. On the other hand, Reliance has a great momentum going for it and will rely on volumes.
he company’s decision to enter GSM space has helped it widen its customer base. By April 2010, the company had won 16.11 million GSM subscribers (COAI), a span of just 16 months since launch, and company officials from RCom are quick to point out how they were able to build a pan-India GSM network in such a short time. RCom’s strategy would now be to aggressively expand GSM presence in its key circles and play on higher volumes to gain revenues from its 3G services. Rahul Jain, Research Analyst, Angel Broking, tells B&E, “Value addition in form of VAS only works with a small section of the subscriber base... The only differentiator to acquire and sustain subscribers is price”
In that sense, Bharti, despite paying the most, looks like the one that would be most disappointed. A Macquarie report points out that “Bharti has not got 3G spectrum in nine circles which cumulatively contribute 31.6% to its overall wireless revenue.” RCom has taken up a mix of Metro and C circles, and its total revenue coverage (GSM +CDMA) in the circles it has won is estimated at 41% of its total (Angel Broking data). But Bharti has reasons to be optimistic. Airtel and Idea are likely to have the highest ROI followed by Vodafone, Tata & Reliance. Going by the data, metros will struggle on ROI, but the key markets that will determine future ROI are UP, Maharashtra, AP, Gujarat, Tamil Nadu and Karnataka. Apart from eastern UP, Maharashtra and Gujarat, Bharti has got all these key circles, but RCom hasn’t won any of them. However, in the 9 circles that Bharti didn't win, it is among the top three operators, and Goldman Sachs predicts in a report that it could face significant customer churn in those circles. RCom, meanwhile, has taken up circles like Punjab, Madhya Pradesh, Kerala, Orissa, West Bengal, et al; which are aligned particularly to its GSM circles.
The subscriber market for data will remain restricted to specific markets and not be uniform like voice. In terms of subscriber numbers, Bharti is at around 130.6 million users (COAI, April 2010), while RCom has crossed the 100 million mark fairly quickly; with subscriber numbers at 105.15 million (April 2010, COAI). ARPU data confirms that Bharti has more of a high value customer mix, a consequence of its pioneer advantage. That also means a better shot at 3G, which is more about high value customers in the initial phase. On the other hand, Reliance has a great momentum going for it and will rely on volumes.
he company’s decision to enter GSM space has helped it widen its customer base. By April 2010, the company had won 16.11 million GSM subscribers (COAI), a span of just 16 months since launch, and company officials from RCom are quick to point out how they were able to build a pan-India GSM network in such a short time. RCom’s strategy would now be to aggressively expand GSM presence in its key circles and play on higher volumes to gain revenues from its 3G services. Rahul Jain, Research Analyst, Angel Broking, tells B&E, “Value addition in form of VAS only works with a small section of the subscriber base... The only differentiator to acquire and sustain subscribers is price”
Source : IIPM Editorial, 2012.
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
An Initiative of IIPM, Malay Chaudhuri
and Arindam Chaudhuri (Renowned Management Guru and Economist).
For More IIPM Info, Visit below mentioned IIPM articles.
IIPM Best B School India
Management Guru Arindam Chaudhuri
Rajita Chaudhuri-The New Age WomanIIPM's Management Consulting Arm-Planman Consulting
