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Finance case study

ARPU UPGRADATION
The Company

AlphaTel is a large telecom company in India and a pioneer in bringing new developments and
products in the industry. However, in recent times it faces tough competition from a new
entrant who have acquired a large customer base due to its dirt cheap mobile plans and big
marketing and capex spends.

Due to the competition, AlphaTel have to reduce the prices of their base packs and heavily
spend on 4G coverage. Prices have not increased in last Two years with no short term visibili-
ty of increase in prices. The Telecom regulatory have also put added pressure on Margins by
waiving Interconnect charges and announcing 5G auctions in coming months.
The Challenge

During the last 2 years, AlphaTel has seen Negative addition to customer base, with Average
Revenue Per user also declining by 20%. Various revenue segments have eroded like National
Roaming Revenue, Hello Tunes, Interconnect charges and other VAS Revenue.
Since the number of subscribers are not expected to increase in coming quarter with ARPU
expected to remain same, the CEO of the company has called for a team review with all func-
tional leaders for discussing on the ARPU upgrade and generating new revenue models.
The team collectively concluded the following points for increasing revenue and customer
profitability:

a) Creating a holistic customer ARPU upgrade program by providing additional non-voice

and non-data benefits to the higher grade of customers.
b) Increasing online recharge penetration to save on dealer commissions and high distri
bution cost.
c) Using online platform to increase customer life cycle and save on the experience cost.
d) Discovering new revenue generating avenues in form of partnership with other digital
platforms for promoting their brand on our platforms.

While similar customer loyalty and engagement programs were introduced earlier, they didn’t
give the desired results. The business and marketing teams have come up with a detailed
plan on the following to drive customer experience and upgrades.
a. Introduction of category segmentation for all the customers, where the high value
customers would get free access to music, TV, online entertainment, mobile insurance
and other loyalty benefits.
b. A range of cashbacks and coupons for high value recharges done through its own
platform.

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c. Setting up a new team for driving online growth and leading product developments as per
market requirements.
d. A robust marketing campaign to promote the loyalty program, online penetration and
cashbacks and rewards.
e. Partnering with various other tech ventures to jointly promote their brand and generate
value for existing telecom customers.
f. Introduction of New Recharge plans of Rs 250 and Rs 300 providing additional benefit of
insurance and Beta TV with unlimited data.

As per the initial estimates, below is the cost of campaign:

a. For all Recharges on AlphaTel App, a recharge coupon of Rs. 10 for Rs 200 Recharge, and
Rs 30 for Rs 450 Recharge. Currently 5% of all Recharges are done through App.
b. A dedicated Marketing campaign with annual cost of Rs 250 Mn for promoting loyalty
program and App downloads.
c. A new team to be set up for driving the program. Annual cost Rs 50 Mn.
d. A separate budget for other cashbacks, partner coupons, and App engagement
programs for Rs. 100 Mn p.a.
e. The Thanks Loyalty program cost is Rs. 5/month per customer for Music and TV, Rs. 20/
month per customer for entertainment and mobile insurance. While Music and TV would
be provided to all customers, Entertainment and insurance would be provided to user
having ARPU > 150/month. No Benefits to Rs 35 user base.

Below are the details of various Base Recharges provided by AlphaTel. While Rs. 35 is a minimum
Recharge available, all other Recharges come up with unlimited calls and certain data per day.

MRP (Rs) 35 130 170 200 400 450

Subscribers (Mn) 70 50 20 20 30 15

Validity (Days) 30 30 30 30 90 90

Other Information:
a. Offline Recharges Dealer Commission is 8%. Online Recharges on Third Party Wallets 1%.
b. Online Processing and Handling cost on AlphaTel App is 1%.
c. GST on Telecom Recharges 18%.
d. The customers on Rs. 35 Recharge are generally the ones with AlphaTel as their secondary
SIM, with their primary connection with one of the competitor telecom providers.

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Need
The business and marketing teams have come up with their plan to target the low ARPU
subscribers. The plan has a cost element attached in terms of cashbacks, loyalty programs
and online marketing and advertising campaigns.

Tasks
a) Prepare a detailed ARPU up gradation model detailing how the target segments
should be identified and targeted? What would be the minimum incremental revenue
to determine the success of the campaign?
b) Present a case to the CFO to determine how the cost incurred for promoting recharge
on own online platforms would reap benefits in future. Why we should promote our
own online platform when multiple wallets/ recharge platforms are available in
market with lesser to no processing cost?
c) Create a Financial Modeling assuming there is an immediate shift of 10% base in next
higher base. 3% of all customers have shifted to Rs. 250 Recharge plan and 1% of all
customers shifted to Rs 300 Recharge plan. The share of App Recharges have
increased by 5%. What would be the change in ARPU? How can we derive if the same
is profitable?
d) How can AlphaTel use its huge market footprints and available data to generate new
avenues of revenue generation while collaborating with new age digital startups?

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