Entry of reliance in telecom sector

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Entry of reliance in telecom sector

  1. 1. PROJECT REPORT ENTRY OF RELIANCE IN THE TELECOMMUNICATION SECTOR Submitted by Amulya Kalia(400907002) Anupam Garg(400907003) Karan Garg(400907011) LMTSOM THAPAR UNIVERSITY, PATIALA June 2012
  2. 2. Contents What is a STRATEGY? .................................................................................................................. 3 What is STRATEGIC MANAGEMENT?...................................................................................... 3 METHODOLOGY FOR SM .......................................................................................................... 4 INDIAN TELECOM SECTOR ...................................................................................................... 5 INDUSTRY ANALYSIS ............................................................................................................... 7 PORTER’S FIVE FORCES MODEL ......................................................................................... 7 STRATEGIES FOR TELECOM SECTOR .............................................................................. 10 SWOT ANALYSIS ................................................................................................................... 14 RELIANCE COMMUNICATIONS ............................................................................................. 15 RCOM STRATEGIES .................................................................................................................. 20 PRICING STRATEGY ............................................................................................................. 20 SALES AND MARKETING STRATEGY: ............................................................................. 21 ADVERTISING: ....................................................................................................................... 21
  3. 3. What is a STRATEGY? STRATEGY is a method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem. What is STRATEGIC MANAGEMENT? STRATEGIC MANAGEMENT analyzes the major initiatives taken by a company's top management on behalf of owners, involving resources and performance in internal and external environments. It entails specifying the organization's mission, vision and objectives, developing policies and plans, often in terms of projects and programs, which are designed to achieve these objectives, and then allocating resources to implement the policies and plans, projects and programs. Strategic Management is all about identification and description of the strategies that managers can carry so as to achieve better performance and a competitive advantage for their organization. An organization is said to have competitive advantage if its profitability is higher than the average profitability for all companies in its industry. Strategic management can also be defined as a bundle of decisions and acts which a manager undertakes and which decides the result of the firm’s performance. The manager must have a thorough knowledge and analysis of the general and competitive organizational environment so as to take right decisions. They should conduct a SWOT Analysis (Strengths, Weaknesses, Opportunities, and Threats), i.e., they should make best possible utilization of strengths, minimize the organizational weaknesses, make use of arising opportunities from the business environment and shouldn’t ignore the threats. Strategic management is nothing but planning for both predictable as well as unfeasible contingencies. Strategic Management is a way in which strategists set the objectives and proceed about attaining them. It deals with making and implementing decisions about future direction of an organization. It helps us to identify the direction in which an organization is moving. Strategic management is a continuous process that evaluates and controls the business and the industries in which an organization is involved; evaluates its competitors and sets goals and strategies to meet all existing and potential competitors; and then reevaluates strategies on a
  4. 4. regular basis to determine how it has been implemented and whether it was successful or does it needs replacement. Strategic Management gives a broader perspective to the employees of an organization and they can better understand how their job fits into the entire organizational plan and how it is corelated to other organizational members. It is nothing but the art of managing employees in a manner which maximizes the ability of achieving business objectives. The employees become more trustworthy, more committed and more satisfied as they can co-relate themselves very well with each organizational task. They can understand the reaction of environmental changes on the organization and the probable response of the organization with the help of strategic management. Thus the employees can judge the impact of such changes on their own job and can effectively face the changes. The managers and employees must do appropriate things in appropriate manner. They need to be both effective as well as efficient. One of the major role of strategic management is to incorporate various functional areas of the organization completely, as well as, to ensure these functional areas harmonize and get together well. Another role of strategic management is to keep a continuous eye on the goals and objectives of the organization. METHODOLOGY FOR SM There are many different frameworks and methodologies for strategic planning and management. While there is no absolute rules regarding the right framework, most follow a similar pattern and have common attributes. Many frameworks cycle through some variation on some very basic phases: 1) analysis or assessment, where an understanding of the current internal and external environments is developed, 2) strategy formulation, where high level strategy is developed and a basic organization level strategic plan is documented 3) strategy execution, where the high level plan is translated into more operational planning and action items, and 4) evaluation or sustainment / management phase, where ongoing refinement and evaluation of performance, culture, communications, data reporting, and other strategic management issues occurs.
  5. 5. INDIAN TELECOM SECTOR India has the fastest growing telecom network in the world with its high population and development potential. Airtel, Vodafone, Idea, Reliance, Tata DoCoMo, BSNL, Aircel, Tata Indicom, MTNL and Loop Mobile are the major operators in India. However, rural India still lacks strong infrastructure. India's public sector telecom company BSNL is the 7th largest telecom company in world. Telephony introduced in India in 1882. The total number of telephones in the country stands at 960.9 million, while the overall teledensity has increased to 79.28% as of May 31, 2012 and the total numbers of mobile phone subscribers have reached 929.37 million as of May 2012. The mobile teledensity has increased to 76.68% in May 2012. In the wireless segment, 8.35 million subscribers were added in May 2012. The wire line segment subscriber base stood at 31.53 million. Indian telecom operators added a staggering 227.27 million wireless subscribers in the 12 months between Mar 2010 and Mar 2011 averaging at 18.94 million subscribers every month. To put this into perspective, China which currently possesses the world's largest telecommunications network added 119.2 million wireless subscribers during the same period (March 2010 - March 2011) averaging 9.93 million subscribers every month (a little over half the number India was adding every month). So, while India might currently be second to China in the total number of mobile subscribers, India has been adding nearly twice as many subscribers every month until March 2011. Mobile teledensity increased by almost 18.4 percentage points from Mar 2010 and Mar 2011 (49.60% to 67.98%) while wire line subscriber numbers fell by a modest 2.2 million. This frenetic pace of monthly subscriber additions means that the Indian mobile subscriber base has shown a year on year growth of 43.23%. According to recent reports, India was purported to overtake China to become the world's largest mobile telecommunications market by the year 2013. It was also predicted that by 2013, the teledensity will shoot up to 75% and the total mobile subscriber base would be a colossal 1.159 billion.
  6. 6. Rank in world in network size 3rd Tele density (per hundred populations) 79.28 Telephone connections (In Million) Fixed 929.37 Mobile 31.53 Total 960.9
  7. 7. INDUSTRY ANALYSIS PORTER’S FIVE FORCES MODEL 1. Threat of New Entrants. It comes as no surprise that in the capital-intensive telecom industry the biggest barrier to entry is access to finance. To cover high fixed costs, serious contenders typically require a lot of cash. When capital markets are generous, the threat of competitive entrants escalates. When financing opportunities are less readily available, the pace of entry slows. Meanwhile, ownership of a telecom license can represent a huge barrier to entry. In addition, it is important to remember that solid
  8. 8. operating skills and management experience is fairly scarce, making entry even more difficult. 2. Power of Suppliers. At first glance, it might look like telecom equipment suppliers have considerable bargaining power over telecom operators. Indeed, without high-tech broadband switching equipment, fiber-optic cables, mobile handsets and billing software, telecom operators would not be able to do the job of transmitting voice and data from place to place. But there are actually a number of large equipment makers around. There are enough vendors, arguably, to dilute bargaining power. The limited pool of talented managers and engineers, especially those well versed in the latest technologies, places companies in a weak position in terms of hiring and salaries. 3. Power of Buyers. With increased choice of telecom products and services, the bargaining power of buyers is rising. Let's face it; telephone and data services do not vary much, regardless of which companies are selling them. For the most part, basic services are treated as a commodity. This translates into customers seeking low prices from companies that offer reliable service. At the same time, buyer power can vary somewhat between market segments. While switching costs are relatively low for residential telecom customers, they can get higher for larger business customers, especially those that rely more on customized products and services. 4. Availability of Substitutes. Products and services from non-traditional telecom industries pose serious substitution threats. Cable TV and satellite operators now compete for buyers. The cable guys, with their own direct lines into homes, offer broadband internet services, and satellite links can substitute for high-speed business networking needs. Railways and energy utility companies are laying miles of high-capacity telecom network alongside their own track and pipeline assets. Just as worrying for telecom operators is the internet: it is becoming a viable vehicle for cut-rate voice calls. Delivered by ISPs - not telecom operators - "internet telephony" could take a big bite out of telecom companies' core voice revenues. 5. Competitive Rivalry. Competition is "cut throat". The wave of industry deregulation together with the receptive capital markets of the late 1990s paved the way for a rush of new entrants. New technology is prompting a raft of substitute services. Nearly everybody already pays for phone services, so all competitors now must lure customers
  9. 9. with lower prices and more exciting services. This tends to drive industry profitability down. In addition to low profits, the telecom industry suffers from high exit barriers, mainly due to its specialized equipment. Networks and billing systems cannot really be used for much else, and their swift obsolescence makes liquidation pretty difficult.
  10. 10. STRATEGIES FOR TELECOM SECTOR Scope - Business Portfolio: In the telecom sector, there are a number of ways by which a new entrant can develop its business portfolio. The key issue is whether the firm wants to be an integrated or focused player. Reliance Infocom, Bharti Televentures, and Tata Teleservices are positioning themselves as integrated players, though with differing levels of scope and commitment, and with desires to have a presence in basic (both wire line and wireless) as well as national and international long distance. All three companies are laying a fibre optic network across the country to build backbone infrastructure, though the scale at which Reliance is building far exceeds that of, say, Tata Teleservices. Bharti's project to connect Chennai and Singapore through an underground cable shows its commitment to international long distance market. Reliance additionally has eyes on the data services segment which is slated to exceed the voice traffic very soon. Scope-Geographical: Number of geographical sectors where a new entrant to the domestic telecom sector wishes to be present is also a key decision. The range of choices available can include local, regional and national. For example, Reliance Infocom, given its big bang approach, plans to cover all the 18 telecom circles in India. As against this, Bharti seems to be focussing on south and north Indian circles, Tata Telesrvices in Andhra Pradesh, while smaller players with limited resources such as HFCL Infotel and Shyam Telecom are concentrating on a single circle. Value Propositions: There are essentially three generic strategies, viz. differentiation, cost leadership and niche, for competing in any industry. This basic concept is applicable in telecom sector too, though pursuing the niche strategy may not be viable, given the fact that the boundaries within and across various segments are increasingly getting blurred, possibility of substitute completion is high (for example Internet telephony can eat into national and international long distance market and vice versa), bulk of the backbone infrastructure to serve basic, national long distance and international long distance are common and scale intensive, benefits of network externalities and positive feedback are real and opportunities for cross subsidising any niche segment with a view to achieving dominance through predatory pricing is feasible.
  11. 11. Value Chain Configuration: Configuration of value chain depends on the generic strategy being pursued and critical capabilities the firm has or proposes to have. If differentiation is the objective, identification of key value propositions around which the proposed differentiation will be achieved and capabilities needed to deliver those, will determine which activities will be performed in-house and which ones will be outsourced but operationally synchronised. For example, Reliance Infocom, to whom a key value proposition will be to provide customers with an opportunity to experience and taste their information products and services, proposes to set up thousands of company owned web stores, where customers can buy mobile phones and accessories, play online games, hold video-conferences and use Internet. For customers who will place orders for phones online, deliveries will be made through courier service. They have also put in place a consumer marketing group to sell the company's products and services as an FMCG company would do. Technology Platform: There exist a large number of technological options in telecom field, each characterised by unique features, complexities, investment requirement, reliability and maintenance need. Care is needed while selecting a particular technology since such decisions will have implications for value creation process as well as on cost incurred to create and deliver the same. Other associated but important issues are problems of lock-ins and switching costs and flexibility to switch over to next generation technologies without wholesale rejection of legacy system. In an industry such as telecom where technology is fast changing, service providers will need to be extra cautious before making irreversible commitment to a particular type or generation of technology. Strategic Alliance Partner: When faced with the daunting task of mobilising resources, technology and marketing capabilities needed to face formidable competitors having all these inputs, companies lacking these resources to the required degree often enter into strategic alliances with partners having complementary skills, resources and geographical presence, the aim being to improve the chance of success in the unfolding industry. The choice of alliance partners can be critical to future success. A series of strategic alliances, both formal and informal, have already been entered into in the Indian telecom sector by companies who are either constrained by shortages of resources or do not have adequate presence in all geographical markets.
  12. 12. Legal Structure: An important choice for a firm planning to make a big foray into the Indian telecom sector in is the kind of legal structure it should have, to drive its strategy and business plan. For example - should it have separate legal entities for servicing wire line, wireless and data services? Should it have an independent company for running the backend infrastructure and a separate outfit for providing the information and related services? Should the long distance (both national and international) be kept separate from basic services? Questions like these and similar others are very common in telecom sector and the choice will differ from company to company. Each of these options will have different legal, financial and organizational implications and individual companies will need to make decisions in this regard, keeping in view the big picture they have and also the administrative implications. Mode of Entry: In India, different telecom operators followed different entry strategies for entering different segments of the industry, based on their respective assessment of how the chosen route would provide specific advantages like lowering the cost of and time of entry and access to markets being targeted. Both Hutchison and Bharti entered the Calcutta cellular market through acquiring existing operators, who originally entered the industry through green field project using technical know-how from overseas collaborators but could not run the business as they did not have the deep pockets. Timing of Entry And Roll Out: In case of a fast changing industry such as telecom which is characterized by availability of variety of technologies and standards and evolving regulations, timing of entry and roll out is a major strategic decision. Too early an entry involving irreversible commitments may turn out to be wrong while delayed entry may mean lost opportunities. In information goods industry, it is generally perceived that early movers get advantage over late entrants and such advantages are difficult to overcome once these accrue to the first movers. Subsequent to the entry of various new players into the cellular market, each making major financial, technological and organizational commitments, the Government made a number of policy changes such as allowing the incumbent public sector unit to offer cellular services without paying the steep license fee, change of fee structure from fixed licensed fee concept to revenue sharing concept and most importantly allowing the basic service providers to offer limited mobility, all of which may put a downward pressure on future profitability of cellular
  13. 13. segment. During this period, there were also developments on the technology front and advantages and disadvantages of GSM and CDMA technologies particularly with regard to voice quality, roaming facility and broadband services in relation to cellular services became clearer. Pace of execution: The speed at which a project will be executed is a major decision that can have important cost implications. It is well known that longer the execution time more will be the overall cost of the project. The delay will also imply loss of opportunity to use the investments being made. In case of the telecom industry, where investments involved are very high and there is also the necessity to delay consciously the actual commencement of project execution for reasons discussed in the previous section, the importance of high speed execution cannot be overemphasized. Reliance Group, which is known for its rapid project execution capabilities (they had put up a 30 million ton grass root refinery involving an investment of US$ 4 billion in just 14 months in late 90's) could afford to delay taking a final decision on technology and project scope because of their confidence and capability to execute any mega project rapidly.
  14. 14. SWOT ANALYSIS Strength 1.Flexible plans 2.Good advertising 3.High brand visibility 4.Celebrity brand ambassadors 5.Ability to attract customers with various plans Weakness 1. Price competition from BSNL and MTNL 2.Untapped Rural Market Opportunity 1. Fast expanding cellular market 2.Latest and low cost technology 3.Untapped rural market Threats 1. New entrant's low price offering 2. Saturation point in Basic telephony service 3. Mobile Number Portability 4. Other emerging modes of communication (basically the internet)
  15. 15. RELIANCE COMMUNICATIONS Reliance Communications Ltd. (commonly called RCOM) is an Indian broadband and telecommunications company headquartered in Navi Mumbai, India. RCOM is India's second largest telecom operator, only after Bharti Airtel. It is world's 15th largest mobile phone operator with over 150 million subscribers. Established in 2004, it is a subsidiary of the Reliance Group. The company has five segments: Wireless segment includes wireless operations of the company; broadband segment includes broadband operations of the company; Global segment include national long distance and international long distance operations of the company and the wholesale operations of its subsidiaries; Investment segment includes investment activities of the Group companies, and Other segment consists of the customer care activities and direct-tohome (DTH) activities. VISION -By 2015, be amongst the top 3 most valued Indian companies, -Providing Information, Communication & Entertainment services, and being the industry benchmark in -Customer Experience, Employee Centricity and Innovation MISSION Create world-class benchmarks by:  Meeting and exceeding Customer expectations with a segmented approach  Establishing, re-engineering and automating Processes to make them customer centric, efficient and effective  Incessant offering of Products and Services that are value for money and excite customers  Providing a Network experience that is best in the industry
  16. 16.  Building Reliance into an iconic Brand which is benchmarked by others and leads industry in Intention to Purchase and Loyalty  Developing a professional Leadership team that inspires, nurtures talent and propagates RCOM Values by personal example
  17. 17. RCOM STRATEGIES PRICING STRATEGY “My vision is to provide the latest telecommunication facilities to every Indian at the price of a post card” – Dhirubhai Ambani. “A monthly telecom spend of Rs 2503 ($5.6) would usher in a telecom revolution in India. At that rate, the telecom market will be around 600 million lines,” said B D Khurana, former group President and CEO, Reliance Infocomm. Reliance Infocomm challenged conventional cost structures in the telecommunications industry. Historically, telecommunication services have been the privilege of a small section of society. Reliance Infocomm broke this mould with a tariff that is the most ambitious ever listed by a telecom company in India. It aimed for prices as low as the cheapest alternative – the postcard. While other operators aimed for the value market, Reliance Infocomm realized that there is a market in driving volumes and aimed at creating a completely new market. “According to estimates, there are around 320 million households with an annual income of Rs 1.5 lakh ($3,333). Out of that, half are in rural area with similar purchasing power. And this segment is expected to grow to 478 million by 2007 and to 602 million by 2010” commented BD Khurana, former group President and CEO, Reliance Infocomm, hinting about the market that Reliance infocomm aimed to capture.
  18. 18. SALES AND MARKETING STRATEGY: Reliance targeted internally as it looked around for the first set of customers. Officials of Reliance Infocomm realized that an employee base of more than 50,000 and a shareholder base of about 3.3 million was the best place to start as far as customers are concerned. Every employee was offered 10 connections at a discounted rate. While the normal monthly charges would be Rs.600 ($13.3), for the employees it was offered at Rs.500 ($11.1). Many employees bought Reliance connections for many of their relatives and friends. During the annual general meeting the Reliance Chairman offered shareholders a discount package. The company offered Rs.850 ($18.9) discount on initial payments on subscription per connection. In addition, the shareholders were offered free usage worth Rs.100 ($2.2) for the next six months. This amounted to a total discount of Rs.1,450 ($32.2) per connection. In addition the shareholders were encouraged to promote Reliance Infocomm connections among their circle of influence. If a shareholder subscribed to two connections, he or she would get free usage worth Rs.100 ($2.2) per connection for the next 12 months, in addition to the Rs.850 ($18.9) per connection discount. This amounted to a total discount of Rs.4,100 ($91.1) for two connections. ADVERTISING: Advertising was definitely a marketing strategy which complemented the unconventional channels of Reliance Infocomm. The Reliance mobile brand was branded as IndiaMobile to cash in on patriotic feelings. Bundling of handsets along with the service – a first time in India – allowed Reliance Infocomm to resort to a co-branding exercise with the handset makers. The Reliance Infocomm brand name embossed on every handset gave it a unique mileage, while the costs of many of the advertisements were discounted since they were borne together with the handset makers. A mega advertising campaign was launched across the media to mark the launch. The blitzkrieg coincided with the world cup cricket tournament. This ensured that practically the whole of India was watching and listening. The main theme of the first campaign built on the vision of Reliance Infocomm in bringing the power of telecommunications to every common person. This campaign helped educating people on the importance of telecommunication services. The next set of campaigns talked about the innovative product features, which differentiated Reliance Infocomm from competitors. The advertisements
  19. 19. announced that Reliance IndiaMobile was 'Kabhi mobile, kabhi computer' (Sometimes Mobile, Sometimes Computer). In the subsequent campaigns Reliance started riding on movies and cricket as a theme. Overall three things emerge from the way Reliance handled the media. Firstly Reliance built a huge public relations exercise around the launch of the product. The public relations gave much leverage to the advertising and gave rise to a word of mouth campaign. Secondly Reliance Infocomm utilized every media vehicle effectively. Literally it advertised on every single TV channel available and every single newspaper available, thus making sure that the product was being promoted across India – a nation very much divided by language and market conditions. At the peak Reliance Infocomm booked about 5,000 spots in 40 TV channels, 1 million sq ft of spaceon hoardings across the country and inserted ads in over 70 publications in national and regional languages. Thirdly, Reliance Infocomm relied on the passions of India, while framing advertisements. The campaigns that had an emotional note to them, piggy backed on Cricket and Bollywood (equivalent of Hollywood in India) – two main themes of India, thus effectively connecting to almost every Indian. For marketing promotions Reliance again followed unconventional strategies. The mobile service was promoted aggressively through every single marketing channel. Huge signages were put up in front of every gas station, office space in addition to the prime spots booked all across the nation. The bulk purchase of signages ensured that the cost was low compared to the competitors. Reliance Infocomm also utilized their telecom towers by putting up glow sign boards on them, which lit up during the night – an innovative but cost effective strategy since most of the towers were in highly populated and visible areas.

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