Setting the tone

Circa July 2003. The Mukesh Ambani-led Reliance Infocomm created a stir with its “Monsoon Hungama” offer. Launched with the end objective of substantially scaling up its CDMA subscriber base, the company promised a handset, apart from a connection, at an entry price of just Rs 501. And certainly, Reliance Infocomm seemed to have hit the jackpot with this scheme. Within two days of its launch, the company activated 2.5 lakh connections. This number was huge, considering that big operators added as many subscribers in a full month at the time. To handle the scramble for the low-priced phones, LG and Samsung even had to hire Boeings to ferry more phones.

Cut to January 2008. Reliance Communications (formerly Reliance Infocomm), now under the stewardship of Anil Ambani post the brothers’ split, launches its nationwide GSM-based mobile services.

Given the Ambanis’ sense of the occasion, the junior Ambani, too, didn’t disappoint, and unveiled an aggressive pricing strategy to kickstart its GSM foray. As an introductory offer, lifetime pre-paid was available for only Rs 25. In some circles, the operator offered free talktime worth Rs 900 spread over three months. In February, it slashed its GSM tariffs by 50 per cent by doubling the talktime period and extending validity for lifetime. This could trigger a fresh round of price wars in the industry. “We’ve once again raised the bar in bringing more affordable wireless services to our subscribers with our nationwide GSM services,” asserted Ambani after the launch. The result: a landslide for the company in terms of absolute subscriber additions. In January, it logged a staggering five million new subscribers, surging past competition.

Market leader Bharti Airtel, for instance, just managed 2.73 million subscriber additions in the same month. With this, the company claims to have become India’s and world’s first (apart from China) to add five million new subscribers in a span of a month. RCom followed it up with an impressive 3.38 million subscriber additions in the month of February—once again better than the competition.

For Reliance, its GSM launch was part of a well-crafted strategy to increase market share. RCom has maintained its position as by far the largest CDMA operator and amongst the top two wireless operators in the country. This position was achieved even without participating in the GSM market that accounts for nearly 8 out of every 10 new wireless subscriber additions in the country. It, therefore, made sense for the company to expand into GSM services as well. Says Ambani: “The GSM rollout creates a huge opportunity for us in the market where we’ve not participated historically.”

Speedy Rollout
Indeed, there was a sense of urgency as the company went about establishing its GSM network. It was allotted spectrum in January 2008 and in just eleven months, it was able to complete the rollout, culminating in the launch of service on December 30, 2008. The project was actually completed six months ahead of schedule. Says S.P. Shukla, President (Wireless Business), Reliance Communications: “What other operators have taken 15 years to complete, we are completing in less than 15 months, an ample proof of our capabilities to execute mega projects of the size and scale of the national GSM rollout.” Already, its GSM service is available in nearly 14,000 towns and over 4 lakh villages which will be further expanded to 24,000 towns and 6 lakh villages covering over 1 billion people in India over the next few months.

The game plan is to build on its advantage of low-cost capacity across two technologies, CDMA and GSM, on a single infrastructure. This allows RCom to leverage the strengths of both technologies to target every market segment, drive usage, limit subscriber churn and correspondingly improve returns.

Says Shukla: “While our GSM network is new with all its attendant benefits, concurrently we enjoy all the benefits of being an incumbent CDMA operator.” What’s more, the company plans to leverage its existing distribution network of 2,000 exclusive retail showrooms, 5,000 prepaid distributors andfor selling connections and recharges in the GSM space as well.

The company says it’s well placed to record strong growth in subscriber base and revenues due to a host of reasons. One, its CDMA business has a solid foundation and will continue to grow on its strength of unlimited tariff plans and high data speed. Then, RCom executives emphasise that their churn rate is the lowest in the industry (at about 1 per cent), which they feel indicates high satisfaction with the company’s network and customer service. Says Shukla: “We will leverage this strength in customer service delivery to nurture and retain new GSM subscribers we are acquiring with our pan-India launch.” Also, the GSM business will be able to offer widest choice of handsets in the market and not involve any handset support or subsidy.

Cause for Concern
However, while the number of subscriber additions has been high, analysts point out what’s more important is how profitable they are going to be for RCom. While the management has underscored that users have started recharging after using the free minutes of talktime offered as part of the introductory package, the company’s average revenue per user (ARPU), which is already among the lowest in the industry, and the average revenue per minute (ARPM) are still expected to take a significant hit.

Says Priyank Chandra, Analyst, Dolat Capital: “The ARPU for the new subscribers must be very low so the overall blended ARPU will further fall impacting profitability.” And things are unlikely to change in the near future. Analysts believe that players like Bharti Airtel and Vodafone have already cornered the high-end subscribers, especially in the post paid segment, in the 14 circles RCom has now entered to build a pan-India GSM footprint. These circles are the relatively saturated metros and ‘A’ circles where the company is the fourth or fifth operator.

This could again result in RCom having to settle for relatively low ARPU paying customers in the future as well. The company, though, says it’s not worried. Says Shukla: “Our lower cost structure should be able to justify lower ARPUs”. Further upsides from roaming and value added services, he asserts, will be part of the company’s new GSM revenue streams in the coming quarters.

To be sure, with the aggressive launch of its GSM services, Reliance Communications has served notice to competition. Analysts point out that February subscriber additions indicate a strong momentum for RCom despite the rationalisation of its initial GSM promotional offer—which now requires higher upfront payment and offers fewer free minutes. The company has set ambitious growth targets for itself.

By the end of 2009, it’s targeting a subscriber base of 100 million customers. That would mean an addition of almost 40 million subscribers in the calendar year—a growth of 65 per cent (its subscriber base currently is 69.38 million). Says Shukla: “Our goal is to do better than competition month-after-month.” But, regardless of whether it achieves that target or not, analysts say it’s going to emerge as a serious threat to market leader Bharti Airtel, which had 91 million subscribers at the end of February. Says Harit Shah, analyst, Angel Broking: “Its net subscriber additions per month, both GSM and CDMA combined, should match or even surpass Bharti’s performance in future.” Clearly, RCom means business.