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B. Arun Kumar MBA 08 018
The next few pages of this report tell about one of the innovative firms in the Indian telecom industry. IDEA Cellular is a leading GSM mobile services operator in India with over 53 million subscribers, under brand IDEA. IDEA Cellular is a publicly listed company, having listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in March 2007. A frontrunner in introducing revolutionary tariff plans, IDEA Cellular has the distinction of offering the most customer friendly and competitive Pre Paid offerings, for the first time in India. Idea’s mission- “We will delight our customers while meeting their individual communication needs anytime, anywhere.” Idea’s mission tells us what they are and what they are doing at the present. Their values are Integrity, commitment, passion, seamlessness and speed are in perfect. Their values are in perfect sync with their mission because these values are of paramount importance for the successful achievement of their mission. Idea’s SWOT shows us that their parent company (Aditya Birla), existing footprint and that obsession for innovation are their major strengths while their concentration on a few circles, their late entry into many new circles and high debt-equity ratio can be cited as their weaknesses. Falling regulations, growing rural market and 3G services are the factors that bring new opportunities for Idea. New entrants (ever increasing number of telecom operators in India) and new technology (can be an opportunity as well) pose threats for Idea. External environment analysis shows that competitive rivalry is very high, bargaining power of customers is high, bargaining power of suppliers is low, threat from new entrants and substitutes are also high. This clearly reveals the fact that Idea is in an extremely competitive environment. E.g. the ongoing tariff war in the highly competitive Indian telecom market has been taking new shape with every passing day and it has reached new heights now. Operators have been announcing new promotional schemes including reduction in tariffs for voice call, slashing roaming charges and many more such lucrative offers. Recently floated idea of per second call rates has further aggravated competition among telecom players with every operator seemingly imitating others for retaining their market share. Telecom sector is all set to see more severe competition. New entrants, falling tariff rates, new technology and new regulations (mobile number portability) are going to cause big changes to this sector. In such a situation the way forward for a player like Idea, who is not the market leader, is not to initiate a price war but to concentrate on new differentiated products and services. They have come out with many ‘firsts’ in India and that is what Idea is remembered for.
Idea Cellular (Idea) is one of the leading providers of wireless communication services in India. The company is part of the Aditya Birla Group. It provides wireless and long distance voice and internet services to consumer and enterprise markets. IDEA Cellular is a publicly listed company, having listed on the Bombay Stock Exchange (BSE) and the National Stock Exchange (NSE) in March 2007. IDEA Cellular is a leading GSM mobile services operator in India with over 53 million subscribers, under brand IDEA. It is a pan India integrated GSM operator covering the entire telephony landscape of the country. The company also has a presence in telecom infrastructure market through a stake in Indus Towers and other subsidiaries. The company primarily operates in India. It is headquartered in Mumbai, India. The company recorded revenues of INR 101, 484.1 million ($2,214.4 million) during the financial year ended March 2009 (FY2009), an increase of 50.6% over 2008. The operating profit of the company was INR14, 314.3 million ($312.3 million) in FY2009, an increase of 2.8% over 2008. Its net profit was INR9, 008.7 million ($196.6 million) in FY2009, a decrease of 13.6% over 2008. A frontrunner in introducing revolutionary tariff plans, IDEA Cellular has the distinction of offering the most customer friendly and competitive Pre Paid offerings, for the first time in India. Mission - “We will delight our customers while meeting their individual communication needs anytime, anywhere.” With a mission of delighting its customers while meeting their individual communication needs anytime, anywhere, IDEA offers seamless coverage to roaming customers traveling to any part of the country, as well as to international traveling customers across over 200 countries. IDEA Cellular has partnership with over 400 operators to ensure that customers are always connected while on the move, within the country or other parts of the world. Idea’s Values - Integrity - Honesty in every action Commitment - deliver on the promise Passion - energized action Seamlessness – boundary less in letter and spirit Speed - one step ahead always
SWOT Analysis – Analysis the internal environment.
Strength Attractive existing footprint – The subscriber base under brand Idea, increased from 24 million as of end March 2008 to 43.02 million as of end March 2009, a growth of around 79%, taking its national market share to 11%. Original licensee in seven of the Established Circles, providing incumbency advantages - The established service areas are Delhi, Andhra Pradesh, Gujarat, Maharashtra, Haryana, Kerala, Madhya Pradesh and Uttar Pradesh (West). The New Service Areas are Uttar Pradesh (East), Rajasthan, Himachal Pradesh, Bihar, Mumbai, Karnataka, Punjab, Orissa, Chennai & Tamil Nadu, Jammu & Kashmir, Kolkata & West Bengal, and Assam & North East. Market leader in two of, and established positions in the remainder of, the Established Circles. Strong distribution channels. High quality network structure. Innovation – always comes out with new products. IDEA is the winner of ‘The Emerging Company of the Year Award' at The Economic Times Corporate Excellence Awards 2008-09. The company has received several other national and international recognitions for its path-breaking innovations in mobile telephony products & services. It won the GSM Association Award for “Best Billing and Customer Care Solution” for 2 consecutive years. It was awarded “Mobile Operator of the Year Award - India” for 2007 and 2008 at the Annual Asian Mobile News Awards. A national brand Human Resources - The Company through its participative work environment, skill development activities, and by championing the values of commitment, integrity, passion, seamlessness and speed, promotes strong bonding with its employees. During the year, it has again undertaken sharing of value creation by granting another tranche of employee stock options to the eligible employees. The findings of Organization Health Study (OHS) have been analyzed, which are very encouraging, and concern areas are being suitably addressed. The employee strength on rolls stood at 6,481 as on March 31, 2009.
Attractive growth – From 11.8 million subscribers in 2006 to 24 million in 2008 ,then to 43 million by end of March 2009 and to 51 by end of 2009 is really a great performance from Idea. Part of the Aditya Birla Group - IDEA Cellular is an Aditya Birla Group Company, India's first truly multinational corporation. The group operates in 25 countries, and is anchored by over 1, 30,000 employees belonging to 30 nationalities. The Group has been adjudged the ‘6th Top Company for Leaders in Asia Pacific Region' in 2009, in a survey conducted by Hewitt Associates, in partnership with The RBL Group, and Fortune. The Group has also been rated ‘The Best Employer in India and among the Top 20 in Asia' by the HewittEconomic Times and Wall Street Journal Study 2007. Their promoters1. Aditya Birla Nuvo Limited 2. Grasim Industries Limited 3 . Hindalco Industries Limited 4. Birla TMT Holdings Private Limited
Weaknesses High Debt-Equity Ratio: The Company's Debt-Equity ratio is high as compared to its peers. Moreover, the Company needs the approval of the lenders under its financing arrangements before undertaking certain significant corporate actions. Concentration: The Company revenues are derived solely from providing mobile services and it is dependent on four of the Established Circles for a significant proportion of its revenues. The Company had accumulated losses amounting to Rs. 19.23 billion and Rs. 17.23 billion for financial years 2005 and 2006 respectively. The Company may not be in a position to pay dividends until it clears its accumulated losses.
Opportunities The Indian telecommunication industry is expected to continue to enjoy growth due to its low teledensity and increasing affordability of mobile telephone and services. The strong growth in the sector continues, mainly due to expansion of telecom networks to rural India, the reduced cost of entry and the reduced cost of handsets. Low penetration, more particularly in rural India, provides opportunity for further growth, and your company, an
incumbent GSM player with 900 MHz spectrum in about half of India, is well positioned to tap this opportunity. The contribution of service sector to the GDP has improved significantly from 29% in 1950 to 54% in 2005. This is primarily due to growth of information-technology and information technology enables services. This will further stimulate the demand for mobile telecommunication services. The regulatory environment is improving and there is greater clarity in existing rules and procedures. This would enable operators in improving network quality. Also raising of funds will become easier due to greater predictability of operational environment. Competition from new technologies is an inherent threat. While the planned 2100 MHz spectrum auction for 3G services will lead to additional cash outflow, it will also open new revenue streams. The Company’s strong balance sheet and market standing, positions it to participate effectively in such auction.
Threats There is intense competition in the Indian telecommunication industry. Idea Cellular faces significant competition from private companies that have a pan-India footprint such as Bharti Airtel, Tata Teleservices and Reliance Communication Ventures. Also it faces competition from government owned companies such as BSNL and MTNL. Alternative technology is evolving very rapidly in the telecommunications industry. For instance, “Wi-Fi” and “Wi-Max” which allows for voice data transfer have been tested and handsets with such technology may soon be available in the Indian market. Moreover, satellite communication voice data transport medium like “Skype” may become a serious competitor in the long distance voice data transfer business.
Porter’s five forces - Analysis the external environment
1. Competitive rivalry within the Industry a. Principal competitors
Major competition comes from the industry leader Bharti Airtel. Bharti Airtel has 24.3% customer market share and 33.8% revenue market share. Vodafone India has 18.8% customer market share and 20.7% revenue market share.
Idea Cellular has 11.2% subscribers market share and 12.1% revenue market share BSNL has subscriber share of 12.7% and mere 10.2% of revenue share Reliance Communications is the worst performer with 18.9% customer market share and pathetic 11.5% revenue market share. (Data mentioned are by end of August 2009)
b. Salient strengths BSNL has taken full advantage of its wide network and fixed line subscriber base, and has established itself as the provider with maximum coverage over the country. While Bharti Airtel has dominated the scene with wide reach, innovative packages, catchy ads, and has emerged the leader of the pack. Reliance Communications also has the wide network to its advantage. Tata tele-services banks on the Tata- trust factor to gain foothold in the market. Vodafone is hitting the Indian market in a huge way. They have large cash reserves at their disposal to wipe out the competition in future. Weaknesses BSNL lines are mostly marred by congestion, bottlenecks and they have failed to capture the attention of the customers with attractive offers. Unstable range and poor customer support are Airtel’s minuses. Ambiguous schemes have reduced Reliance’s popularity. TATA Indicom has not really been able to fully capitalize its goodwill factor.
c. Their basis for competitionVodafone and Idea are comparatively new entrants into the market and hence the rest of the competition has an advantage over them. Also both these brands have undergone rebranding more than once, and subsequently have had hiccups with people not realizing the transformation. Giants like BSNL, Airtel and Reliance have wide networks in the nooks and crannies of the country, while Idea is still to open account in several states. 2. Bargaining Power of Customers The bargaining power of customers determines how much customers can impose pressure on margins and volumes. Customers bargaining power is likely to be high because
Customers use multiple mobile services these days and hence have a good knowledge of the pros and cons of each service provider. Telecommunication industry comprises a number of operators The industry operates with high fixed costs The product is not much differentiated and can be replaced by substitutes Switching to an alternative product is relatively simple and is not related to high costs Customers have low margins and are price sensitive The customer knows about the production costs of the product.
3. Bargaining power of suppliers In this industry there is less number of suppliers compared to other industries such as the manufacturing or textile industry. I. Mobile handset suppliers – although there are many handset suppliers in the country, some service providers have their own handset manufacturing units operating in the country like the Reliance Classic and Tata Indicom (backward integration). Some of the telecom companies also have some collaboration with major handset manufacturers like Samsung, L.G, and the Blackberry for their CDMA services. II. Some other suppliers include optical fibre suppliers and aluminium (for the construction of towers) suppliers. Here the suppliers have a limited bargaining power. III. Another important one is the software assistance where the suppliers have some edge. Major solution providers include TCS, Infosys, Wipro, etc. While Reliance and Tata have their own software services other players like Vodafone and Idea depend on the above mentioned software service providers. 4. Threat of new entrants Indian telecom sector provides unprecedented opportunities for foreign companies in various areas such as 3G, virtual private network, international long distance calls, value added services etc. The market is witnessing M&A activities that are leading to consolidations in the industry. This trend has assisted companies in expanding their reach in the Indian telecom market to offer better services to the customers. The Indian telecom industry has always attracted foreign investors. In fact, the cumulative FDI inflow, from August 1991 to March 2007, in this sector amounted to $3,892.19 million. This makes telecom the third largest sector to attract FDI since the liberalization.
Although the entry barriers are in place like license and high fixed costs, still we observe many new players emerging from the state-level to national-level. This includes Aircel, Virgin, Spice and Unitech. 5. Threat from substitutes Telecom sector offers a wide range of services in India such as wireline, CDMA, GSM, internet, VoIP, IP etc. Internet telephone is emerging as a best substitute for the mobile telephony because it is cheaper and video can also be added. The increasing use and penetration of internet in the country also augments this. Other facilities on the internet such as Google talk, Yahoo Messenger, Rediff Bol are used at an unprecedented level by the youngsters of this country. These are the major substitutes for the mobile telephony. Maybe this is on of the reasons why the major service providers also have their presence in internet service.
Idea is not the market leader in India. They were operating in a few circles earlier and were considered a regional player. Recently Idea started operations in many states as part of their national roll out plan and they have operations in 2200 towns in India. Idea has been focusing on value added services (VAS) from its inception which is reflected in its products. They have always taken extra care in providing customer friendly and competitive Pre Paid offerings. Differentiation and innovation can be associated with Idea right from its beginning. It’s clear from the following: 'Super Power', ‘2 Minutes Outgoing Free’, ‘Lifelong offer’, ‘Women's Card’, 'Lifetime Idea' etc are some of the offerings of IDEA. IDEA is the first cellular company to launch music messaging with 'Cellular Jockey', 'Background Tones', 'Group Talk', a voice portal with 'Say IDEA' and a complete suite of Mobile Email Services. They are also providing GPRS and EDGE services for transferring data. The new product introduced by IDEA is the EDGE enabled USB Data Card which is named as 'NetSetter'. Initially ‘NetSetter’ was offered to post paid customers only. Now it is available to prepaid customers in selected circles.
IDEA’s partnership with IIFA for 10th Anniversary Awards, its association with Mumbai Indians in IPL and major sought after programs in television like MTV Roadies and Idea Star singer clearly shows its marketing strategies. They always seek something different and is always in touch with the youth of the country as they easily switch to other services. Their ad campaign showing Abhishek Bachan in different settings but all clearly showing their corporate social responsibility is great. Their approach is different from others. Idea was the first to provide one rupee STD calls in the country. Now when every one else gives per second billing and also 50 paisa per minute, Idea offers at 49 paisa per minute.
As far as Idea is concerned it should not start a price war with Vodafone and other large players in the industry. This is because Vodafone has a lot of money with them to suffer the losses and eventually emerge as the winner and it is almost doing that. Idea can only afford to come out with some differentiated tariff plan that does not result in a war with the leaders like Airtel and Vodafone. Indian telecom is already in trouble with the lowest tariff in the world. Differentiation and innovation is the way forward for Idea in this already bleeding industry, otherwise it will be a severe bloodshed.