Vodafone India Evaluation and Entry Strategy

Vodafone India Evaluation and Entry St lay outgyThe Indian telecommunicationmunication manufacture is the worlds fastest growing telecommunications industry. The total number of subscribers was 225.21 Million with a teledensity of 19.86 %. It was expect that the expeditious subscriber bow will grow to 500 Million by 2010 i.e. more(prenominal)(prenominal) than one mobile phone per household and 1.159 Billion mobile subscribers exceeding total subscriber count in China by 2013. The average addition of new subscribers per month was 7.34 Million and it was increasing. The annual increase rate (2006-2007) of the new mobile subscribers was 46.82%.The average revenue per user (ARPU) for GSM was US$ 6.6 per month. There were more number of mobile users than dogged line subscribers.The Indian telecom industry witnessed a CAGR of approximately 22 per cent from 2002-03 to 2006-07. The CAGR from 2006-07 to 2009-10 is evaluate to stabilise at 21 per cent. In addition, the telecom equipmen t food market had grown to US$ 17,100 Million and the handset market had gone up to US$ 4,750 Million.In 2006-2007, Indian telecom industry generated revenues of approximately US $ 20 Billion. The market witnessed a CAGR of 22% in the period 2002-2003 to 2006-2007 with last years growth rate of 33%. The high growth rate resulted in doubling the revenues of the Indian telecom industry in the past 3 years. The industrys revenue is expected to grow up to $ 43 Billion by 2009-2010.The Indian telecom industry can be dissever broadly into Basic, Mobile and Internet serve ups.Basic serve cover primed(p) Wire Line and Wireless in Local Loop (WLL-fixed) function. This component is rule by BSNL and MTNL. MTNL operates in Delhi and Mumbai, whereas BSNL dominates the rest of the country. A few private service providers like Bharati and credence have done well lately in this subdivision but disposal owned BSNL and MTNL continue to dominate in terms of number of subscribers. In 2006, the total number of basic service subscribers exceeded 50 million. Fixed wire line users made up a large sh atomic number 18 of this, with a contribution of 83 per cent.Mobile ServicesThe prime reason of the spectacular growth in the Indian telecom industry is the rise of Mobile Services. The total number of mobile services subscribers has increased to 185.13 Million with an addition of more than 6 Million subscribers ein truth month. India is one of the few countries where there are more number of subscribers than the number of fixed line users. GSM dominate this ingredient with a share of 73% whereas CDMA has a share on only 27%.Currently there are 12 active players in this segment. All the service providers provide services predominantly under two categories Voice Service and Value Added Services (VAS). Voice service comprise of only basic art services whereas Value Added Services comprise of SMS, mobile net income services, email, chatting, conferencing, video conferencin g, GPRS services etc. The revenues from Value Added Services are growing by 30-40% annu wholey. This growth is laying foundations for the introduction of 3G services in India.All the service providers have perpetually indulged in price wars which have led to a reduction in the ARPU constantly. However, the reduction in ARPU has been backed by the increasing number of subscribers. The ARPU of GSM service in India has been much higher as compared to CDMA.In spite of a constant decline in ARPU and with the help of constant tariff reduction, the mobile usage in India has been increasing constantly. Currently, India stands at 2nd position in the world by and by China in terms of Minutes of Usage (MoU). An other(a) inference of reduced tariffs, reduced ARPU and increasing number of subscribers is that the service providers is successfully tapping the bottom of the profit by increasing affordability, which has a huge market potential.Internet ServicesIn 2002, the giving medication of I ndia opened internet telephony and issued licences in this domain. In 2004, the government of India implemented the Broadband Policy which sent out signals of governments positive(p) intent of increasing the penetration of internet in India.Currently, there are 2.25 Million internet connections in India. There are nearly 400 Internet Service providers which are operating in India currently. Though the penetration rate is low, but this segment holds a huge growth potential in India. Government owned BSNL is the largest player in this segment.The total number of Internet subscribers increased at a CAGR of approximately 60 per cent from 1997-98 to 2006-07. An emergence of private players and superior technologies, internet broadband segments have shown impressive potential for growth. With the significant undergoing improvement in telecom stem, the quality and penetration of internet broadband services have undergone significant improvements.Though the private ISPs are catching up fast, the government owned ISPs BSNL and MTNL good-tempered hold nearly two third share of the total internet services market India.Telecom Subscriber Base and Tele-densityDue to the phenomenal growth rate in the Indian telecom industry, India is likely to reach second position in the global telecommunications market by 2010. The total subscriber level in India is likely to reach 500 Million by 2010. The telecom subscriber base is smashing phenomenally and the soaring industry revenues are a go proof of it. The additions in subscriber base in 2007 registered a growth of approximately 47 per cent over the previous year. The CAGR witnessed by the subscriber base for the period 2002-03 to 2006-07 stood at 40.4 per cent. The superbly increasingly subscriber base has also played its part in increasing the tele-density in the country.Currently, the tele-density is India is low as compared to other markets, which is an Indication of a huge untapped market and a huge business opportunit y. In 2006-07, India had a tele-density of 18.31%, depicting a growth of 43%. From 2002-03 to 2006-07, the tele-density in India registered a CAGR at 40.4 per cent and 37.6%.Telecom Service ProvidersThe Wireless Industry crossed 165.11 million-subscribers mark in 2007 comprising of 120.47 million GSM and 44.64 million CDMA subscribers registering an annual growth of 83.17%.Bharati leads the Indian telecom market with a total share of 22.49% followed by BSNL, Reliance and Hutch. Despite stiff competition, Bharti has been successful in retaining its position of leadership.75% of the total GSM segment is occupied by the private players, Bharti and Hutch being the top two players. Reliance and Tata Teleservices dominate the CDMA segment with a combined market share of 91%.VodafoneVodafone Group is the worlds leading mobile telecommunications telephoner. It is a British multinationalmobile cyberspace operatorheadquartered inNewbury, England. It has a significant presence in Europe, the nerve centre East, Africa, Asia Pacific and the United States. It currently has operations in 31 countries and partner net deeds in a further 40 countries. The smart set has made its presence matt-up through the Companys global strategies of subsidiary undertakings, joint ventures, associated undertakings and investitures.Based on subscribers, it is theworlds second largest mobile phone operatorbehindChina Mobileand overTelefnica. The realise Vodafone comes fromvoicedatafone, chosen by the accompany to reflect the provision of voice and data services over mobile phonesVodafone was formed in 1984 as a subsidiary of Racal Electronics Plc. Then known as Racal Telecom Limited, approximately 20% of the companys capital was offered to the public in October 1988. It was fully demerged from Racal Electronics Plc and became an independent company in September 1991, at which time it changed its name to Vodafone Group Plc.Following its merger with AirTouch Communications, Inc. (AirTouch) , the company changed its name to Vodafone AirTouchPlc on 29 June 1999 and, following blessing by the shareholders in General Meeting, reverted toits former name, Vodafone Group Plc, on 28 July 2000.Country evaluationWe evaluate India from the perspective of Vodafone during the period before its entry into India. We look at the variant opportunities it could have foreseen in terms of sales revenue, ease of entry and operations and also look at some of the hurdles it could have predicted.Country opportunitiesWe get with an analysis of the opportunities it could have seen in a large country like India.Market sizeWith the second largest population in the world (Fig 1), the Indian market looked very promising. But one hurdle it faced was low mobile penetration (Fig 2) and low tariff (Fig 3) which kept profit margins low. But the penetration was expected to increase over 40% in the next 5 years1(Fig 4).The population growth and the GDP growth both were in the positive indicating big future potential( As shown below).Economic EnvironmentSince 1991 when the Indian economy opened up, the gradual economical reforms have delivered major cumulative change. These have greatly been in favour of a foreign party entering and doing business in India. The ease of operations has greatly increased. As the bureaucracy has been reduced and the state incline over business decision also reduced, it is easier for companies to quickly formulate and implement business policies. The government has been promoting competition and de-licensing key sectors giving great boost to positive market dynamics. Foreign investment is also being encouraged into many sectors of the economy. Various capital market reforms have been under taken and the foreign exchange rules have been relaxed. boilersuit the economy growth rate increased, the balance of payments is stabilized and the economy overall looked very promising.Regulatory status TRAIThe regulatory institutions were very well developed a mong rising market peers. The following is the mission of TRAI which is very encouraging for a foreign entrantTRAIs mission is to create and nurture conditions for the growth of telecommunications including broadcasting and cable services in the country in a manner and at a pace which will enable India to play a leading quality in the emerging global information society.The goals and objectives, as taken from its annual report 2006-07, clearly indicated the creation of a booming market for telecom operators. Following are some goals of TRIA particularly favourable to a foreign mobile operator entering IndiaIncreasing tele-density and access to telecommunications in the country at affordable prices,Providing a fair and transparent policy environment which promotes a level playing field and facilitates fair competitionRe-balancing tariffs so that the objectives of affordability and operator viability are met in a consistent mannerPreparing the grounds for smooth transition to an era of convergence of services and technologies,Various recent dynamic consultations were done on 3G licensing, roaming and cornerstone sharing. The government had clear targets for teledensity such(prenominal) as 500m telecoms connections by 2010 (implies significant rural coverage) 20m broadband subscribers by 2010The high levels of fees and taxes had been reduced to promote affordability and increase teledensity further increasing cathode-ray oscilloscope for higher revenue. The sharing of passive infrastructure (sites, towers) was permitted and encouraged by the government of India. TRAI was evaluating active network infrastructure sharing to underpin teledensity targets.Other factorsIndia has a very well developed and written legal system in place making the legal aspects easy to comprehend and therefore easier for a foreign company to enter. With the IT boom in place, there was a large educated workforce available for a foreign company to exploit. Although language barriers exi sted, they could be overcome in a phased manner.Major CompetitorsWe can classify players in telecom industry in triplet major categoryGovernment MTNL, BSNLIndian Owned companies Reliance Infocomm, Tata TeleservicesForeign Invested companies Escotel, Idea Cellular, BPL Mobile, Spice Communication, Bharti Tele-Venture, Hutchinson-EssarBharat Sanchar Nigam Limited (BSNL)BSNL is a one of the biggest player in telecommunication industry throughout the globe. It was established in year 2000. It stands seventh in the world in term of its size. It provides diverse domain of tele-services which encompasses wired phone, GSM Mobile, CDMA, Internet, VoIP, broadband, VPN etc. It is one of the largest Public Sector Undertaking (PSU) in India. It has a upset of $ 8 cardinal. It covers 45 million lines covering 35 million connections crosswise 5000 towns in India. It is a Government of India Undertaking. It plans to increase its customer base up to triplex to 125 million and invest Rs. 733 cro res in coming three years.Mahanagar Telephone Nigam Limited (MTNL)MTNL is a Government of India undertaking. It has some 13% market share and covers 5.92 million consumers. GoI holds 56.25% stake in the company. It has revenue about $ 2.47 Billion. Recently it has formed a JV with Telecom Consultants India Limited (TCIL) under name of United Telecom Ltd in Nepal. It has also setup its subsidiary in Mauritius. It has also formed two joint ventures with Software Technology Park of India and BSNL. With estimation of growth in telecom sector it is try to enter M-commerce.BhartiIt was formed in 1985 and was incorporated with name of Bharti Tele-Venture Limited on July 7, 1995. It has mainly two groups Mobility Group and Infotel Group which handles operation. It has turnover of $ 1.37 billion. It provides fixed and wireless telecommunication services across India, also offering broadband services across 94 cities. It has formed a joint venture with British Telecom for Internet services, in 1998. It is trying to found join venture for various sector like, submarine cable landing station in Chennai, infrastructure projects. It is ready to focus on semi-urban and rural areas and to do this is has aggressively to setup more than 3000 towers.Reliance CommunicationIt was established in 1999 and is available in more than 340 towns across eight telecom circle. It has been offering first of its kind mobile data service in India. It is present in CDMA 1X network. It offers complete package of services ranging from fixed telephones to broadband, long distance call and also data services. It has revenue of $ 767 million. It has very strong infrastructure of about 150 thousand kilometres of optic vulcanized fiber spanning India, Middle East, Asia Pacific as well as Europe. It is also a wholesale service provider for various tele-services across the world. It has a strategy to slip by more focus on mobile content provider rather than it voice services. It also plans to double i ts coverage area in next three years.Tata TeleservicesIt was established in 1996 and is a part of Tata Group. The range of tele-services it provides are mobile services, public booth, wireless desktop phones, wireline etc. It also has services spanning internet, Wi-Fi, USB modem, calling cards, and endeavour services. It has it presence in 19 telecom circles. It has also acquired Tele.com in Maharashtra in 2002. It has very aggressive and has paid DoT for 11 new licenses.IdeaIt was founded in 1995 as a part of Aditya Birla Group which is Indias first multinational corporation. Stakes of Idea are distributed among various sister companies of Aditya Birla Group. It has a sales turnover of Rs 24,005.50 million. It has a customer base of over 17 million which are present in 12 telecom circles. It has merged or acquired various players in the various circles to become a service provider. It plans to enter rural and less developed cities to gain subscriber form first mover advantage. It also plays a pro-active CSR roleMode of EntryThere are basically five major different modes of entry for a company to enter a foreign market. They areExportingLicensingFranchisingStrategic Alliance or Joint VentureWholly owned subsidiaryChoice of entry for a company depends and varies from company to company and also on county of investment. We can see from the figure risk associated with various modes of entries. We can also compare various pro and cons of different entry modes in the table.Level of ControlHighLowLowHighLevel of RiskModeDescriptionAdvantagesDisadvantagesExportingTransfer of goods orservices acrossnational boundariesAbility to realize location and experience-curve economiesAvoids the cost of establishing manufacturing operationsLow riskHigh transport costsUnpredictability oftrade barriersProblems with local trade agentsLicensingForeign licenseebuys the rights toproduce a companysproduct inthe licenseescountryLow developmental costQuick growth possibleDifficult to have imageover technologyFranchisingSelling of limited rights to its brand name andbusiness modelLow costs of development and riskQuick growth possibleDifficult to engage in global strategiccoordinationDifficult to examine qualityStrategicalliance/JointVentureSharing of ownership and control byparent companiesAccess to partners knowledgeShared development cost and riskTransfer of complementary skillsDifficult to engage in global strategicRisk of knowledge sharingWhollyownedsubsidiaryParent companyowns 100% ofthe subsidiarysstockProtection of technologyAbility to engage inglobal strategic coordinationHigh costs andrisksMode of EntryAcquisition of Hutchison EssarIn February 2007, Vodafone Group, one of the leading global telecommunication companies entered into Indian market by acquiring the 67% stakes in Hutchison Essar, one of the leading telecom operators in India, which provided its services under the brand name, Hutch. When Vodafone acquired Hutch the later had already pull in a huge brand success in Indian mobile communication sector.Rational Behind the AcquisitionBelow sections will describe about the rational of why Vodafone chose acquisition as its mode of entry in India rather than going alone or other mode of entries.Leveraged up-on existing infrastructure built by Hutch One of the objectives of Vodafone was to bring the product and services at the lowest possible cost for the Indian consumers. Existing infrastructure such as, towers, power supply, distribution channels etc. could help Vodafone to reduce its operating costs and investment requirements. After five years of acquisition Vodafone was able to observe more than one billion dollar by leveraging upon the ready-made and shared infrastructure.Quick entry to the new market- Acquisition also helped Vodafone to make a quick entry to the Indian market. Other mode of entry could have been time consuming or at least could take years to figure the communications channels and network if Vodafone unyielding to enter by own. Also taking the approval/license from the government could have been the time consuming.Minimizing the risk delinquent to cultural differences- Since Hutch was already operating in Indian market before the Vodafone came it had a good understanding of consumers behavior towards selecting a product or services. Also Indian consumers are diversified in term of product choices, likes and dislikes, social and cultural influences, so managing the risk arises out of this divers consumers could have been onerous if Vodafone entered alone.Growth opportunity India is the worlds 2nd most populated country and the fastest growing mobile market in the world. So entering to India could help Vodafone to expedite its business growthBuilding a industrial-strength Brand Acquisition would result in forming a strong brand name Vodafone Essar in India, alter them to make nationwide presence with strong financial position.Better competition to competitors One notable point regarding the Indian telecom market is that, this sector is highly competitive as there are many strong players, like Airtel, Reliance and BSNL operating in the market. So, it could have been difficult for Vodafone to counter the threat present by those competitors. However, Vodafone along with Hutch could give them better competition. This further support the Vodafones strategy to acquire Hutch.Win- Win situation for both Vodafone and Hutch-Vodafone-Hutch acquisition was an strategic social movement for both the companies. Although Hutch had done well in the Indian market, its penetration of total Indian population was only 40%. So, in order to expand its business to other parts of the country, Hutch needed money for investment. At the homogeneous time Vodafone was ready to make the investment in India market. So, Hutch decided to sell its 67% stake to Vodafone to meet its financial needs.Other motive toward acquisitions was that through the acquisition, Hutch would get the global platform for its business as Vodafone was an global player in telecommunication. According to Vodafone Essar director as saying that the objective is to leverage Vodafone Groups global scale in bringing millions of low-cost handsets from across-the-world into India.Sound economic environment After the economic reform Indian foreign policy has been very friendly to the foreign companies who want to come to Indian market. There is relaxation in taxation and foreign exchange rules. Also there is least intervention by the bureaucracy in the management of the foreign companies in India. task Purposes The corporate effective tax rate in India is 33.22% for a local company and 42.23 % for a foreign company. However joint venture companies are taxed same as domestic companies with some minor differences. According to Indian FDI policy,Foreign companies are free to open branch offices in India. However, a branch of a foreign company attracts a higher rate of tax than a subsidiary or a joint venture company. The liability of the parent company is also greater in case of a branch office.ImplementationAfter the acquisition, Vodafone brought many improvements to the existing business model of Hutch. It also made a huge investment to expand its network and distribution channels. The story doesnt stop here it also made a substantial spending in the stigmatisation and advertisement. Its zoo-zoo ad was one of the most successful ads ever made for Indian market. Due to its eye-catching design and features, the ad contributed a lot in mark the Vodafone products- especially value added products and services. Over all Vodafone pick out an aggressive strategy towards expanding its business in Indian market.Below is the elaborated view of the Implementation strategies adopted by Vodafone IndiaRe-brandingBefore acquisition, Company was named as Hutchison Essar, which was the name of the previous owner, Hutchison. However brand was marketed as Hutch, just because its sim ple to rememberAfter the government approval to Vodafone Group to acquire majority of stake, the company name was changed to Vodafone Essar. The marketing brand was again changed to Vodafone on September, 2007Escalating the Distribution ChannelsInvestment to increase the number of sole(prenominal) showrooms and retail outlets -Hutch management was such that it relied on no subsidy (Only SIM) and low cost strategy. Vodafone continued with the same strategy. However it made a huge investment to increase the current level of exclusive shops and retail outlets. Then there were around 1800 exclusive shops and more than 300,000 retail outlets across India.Accelerate distribution roll-out in-line the network roll-out plans Vodafone took a holistic approach for improving its supply-chain network. Vodafone had correctly realized the escalation of the channels for of product delivery is as important as developing its network channels.Escalating the intercommunicate CoverageMOU with Bharati Airtel on extensive level of sites sAdding up more mobile circles India is divided into 23 license territories, also called Circles for the purpose of mobile services. step to the fore of 23 circles, Hutch was operating into only 16 circles, which covers only 40% of the Indian total population. After the acquisition Vodafone expanded it coverage and now captures all 23 circles in India.Sharing of active infrastructure- MOU with AirtelIn order to achieve its long term strategy to become the cheapest mobile operator in India, Vodafone actively shared its infrastructures with other telecommunication operators in India Currently about 2/3 of Vodafone sites are shared with other mobile operators.haring including, sharing of towers, shelters, civil works and power supplyEasily penetration to rural segmentsAchieved low cost servicesSignificant capital expenditure and operating expenses savings for the Vodafone-more than one billion dollarsavings was achieved due to infrastructure sharing Developing consumer and business propositionsMore consumer focused strategy One of the most important drivers who contributed towards the success of Vodafone in India is that its more consumers centric. It offers a blend of product and services that suits to individuals needs. Consumers can choose the kind of products that they think best cater to their individual needs. Following are the major steps taken in order to make Vodafone the most preferred mobile service providerIntroduced low cost handsetsBrought Vodafone live to IndiaPayments through MobileA range of product schemes targeted towards the customers with different needsFirst mover advantage to become the only operator in India integrated into an internationalist mobile companyInternational voice and data roamingStrong brand presence improved the credibility of the company and hence made the consumers to become more dependent on the VodafoneStrong Management team Vodafone took the control of management from Hutch. It for med a hierarchy of management team to ensure that the business objective is achieved at each and both level of the businessStrong and efficient customer care services Emphasized on providing 247 customers care servicesEfficient customer feed-back mechanism- It also brought a customer feedback mechanism at place