Virgin Mobile

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Ringing Youngsters – Virgin’s Distinctive Market Segmentation in India “Virgin Mobile’s strategy is different. We want to deliver a more tailored, more relevant offering for a single, distinct segment. We are not pursuing scale for scale’s sake.” 1 “In true Virgin tradition, Virgin Mobile brings to all its customers ten firsts to the Indian telecoms market we’re even going to pay our customers to talk. Now that really is ‘Think Hatke!’.” 2

The year 2008 saw Richard Branson (Branson), the flamboyant founder of Virgin group entering the competitive Indian telecom market with his Virgin mobile. The arena already had top icons in the fray – Kumar Mangalam Birla (Idea cellular), Ratan Tata (Tata Tele Services Ltd. (TTSL)), Anil Ambani (Reliance infocomm), Sunil Bharti Mittal (Bharthi Airtel), Kuldeep Goyal (Bharath Sanchar Nigam Ltd. (BSNL)), Arun Sarin (Vodafone) and Chandras (Unitech). Branson, famous for his innovative ideas and maverick business decisions made the inaugural function of Virgin mobile in India memorable with a skywalk well reported by a delighted media. Indian telecom market is said to have been warily watching Branson’s move in India while Virgin mobile has been keenly monitoring the telecom market and identifying the ‘youth’ segment. Branson decided to invest about $100 million on this segment and in March 2008 entered into a franchisee agreement with Tata Tele services. 3 This is said to be its largest investment in India till date. 4 The TataVirgin deal has fired the first salvo in the micro segmentation of customers. Experts opine that micro segmentation is essential for a late entrant in the highly competitive telecom market. “This will gain momentum and others will follow” says Aravind Subramanian, partner and director, Boston Consulting Group. 5 Would planned market segmentation strategy and colourful packages provided by the service provider attract the youth and give the new entrant a fair market share to survive in the running waters of telecomm? How will Virgin make its presence significant in Indian telecomm which has the world’s lowest call rates and the fastest growth in subscriber base? 6

1 “Virgin Mobile enters Indian Telecom Market with much Flamboyance”, http://www.techshout.com/mobilephones/2008/03/virgin-mobile-enters-indian-telecom-market-with-flamboyance/, March 3rd 2008 2 “SIR RICHARD BRANSON LAUNCHES VIRGIN MOBILE BRAND”, http://www.virginmobile.in/downloads/Press_Release.pdf 3 “Branson: Gimmick or 21st century master strategist?”, http://news.moneycontrol.com/india/news/business/bransongimmick-or-21st-century-master-strategist-/18/00/329278, March 7th 2008 4 “Virgin Mobile enters India through pact with Tata Tele”, http://www.tata.com/tata_teleservices/media/20080303.htm, March 3rd 2008 5 Prasad Anurag, “Virgin Territory”, http://www.outlookbusiness.com/inner.aspx?articleid=1121&subcatgid=576&editionid=33&catgid=29 6 “In global telephony, India has many ‘firsts’ to showcase”, http://www.financialexpress.com/news/In-global-telephony,India-has-many-‘firsts’-to-showcase/200201/, May 26th 2007

This Case was written by Saigeetha, Lekha Ravi and Syed Abdul Samad, IBS Research Center. It is intended to be used as the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. The case was compiled from published sources. ©2009, IBS Research Center. No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium whatsoever without the permission of the copyright owner.

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– Sir Richard Branson, Chairman and Founder, Virgin Group.

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Indian Telecom Scenario

The rapid rise of mobile users in India had inevitably caught the eye of the private players. Many players vied with one another to enter the Indian cellular market which adds more than 6 million users every month 11 to its account (Exhibit I). Indian cellular services, based on technology, can be further divided into two categories: Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA). Players like Bharthi Airtel 12 , Vodafone 13 , and Idea Cellular 14 dominate the GSM sector while the CDMA sector is dominated by Reliance communications 15 and Tata Indicom 16 . Indian mobile telephony market has witnessed a number of major takeovers and mergers, resulting in significant shifts in market share among the players. Initially there were only three major private players – Hutchison Telecom (subsequently acquired by Vodafone), Bharti Airtel, and Idea Cellular. The entry of the state-owned enterprises – BSNL and MTNL – as mobile operators added to the competition. GSM is more popular than CDMA in India as GSM provides users the facility to change SIM card at any time and international roaming is much easier for the former as it has wider coverage. The CDMA based services in India became popular in 2002-2003. 17 Reliance telecom is the leading CDMA operator in India which has emerged as a major challenger to the GSM operators in India. Reliance also announced plans to launch GSM services in 2007 to gain an advantage over its existing CDMA infrastructure and to increase its reach in the market. While Reliance’s 7 Bharat Sanchar Nigam Ltd. formed in October, 2000 by Government of India, is world's 7th largest Telecommunications Company providing comprehensive range of telecom services in India. Its services include Wireline, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service, MPLS-VPN, VSAT, VoIP services, IN Services etc. 8 Mahanagar Telephone Nigam Limited was set up on 1st April, 1986 by the Government of India to upgrade the quality of telecom services, expand the telecom network, introduce new services and to raise revenue for telecom development needs of India’s key metros. 9 “Telecom Industry in India”, http://www.iloveindia.com/economy-of-india/telecom-industry.html 10 “Fixed service providers”, http://www.iimahd.ernet.in/ctps/basic.htm 11 “UPDATE 1-Vodafone to add 1.5 mln customers/mth at India unit”, http://in.reuters.com/article/companyNews/idINBOM12314220070615, June 15th 2007 12 Bharti Airtel Limited is India’s largest integrated and the first private telecom services provider with a footprint in 23 telecom circles in India(Source: http://www.airtel.in/wps/wcm/connect/airtel.in/airtel.in/Home ) 13 Vodafone Essar is a subsidiary of Vodafone Group Plc and commenced operations in 1994 in India when its predecessor Hutchison Telecom acquired the cellular license for Mumbai. Vodafone Essar now has operations in 16 circles covering 86% of India's mobile customer base, with over 49.1 million customers. (Source: http://www.vodafone.in/pages/index.aspx) 14 IDEA Cellular is owned by Indian business baron ‘Kumaramangalam Birla’ and has operations in Delhi, Maharashtra, Goa, Gujarat, Andhra Pradesh, Madhya Pradesh, Chattisgarh, Uttaranchal, Haryana, UP-West, Himachal Pradesh and Kerala. It has a customer base of over 17 million(Source: http://www.ideacellular.com/IDEA.portal) 15 Reliance communication owned by Indian business tycoon Anil Ambani encompasses a complete range of telecom services covering mobile and fixed line telephony. It includes broadband, national and international long distance services and data services along with an exhaustive range of value-added services and applications.(Source: http://www.rcom.co.in/webapp/Communications/rcom/index.jsp) 16 Tata Comm. is India's leading international telecom service provider. It is part of the Tata Group And is a leader in wireless USB Modem, Wireless Laptop Internet Card and CDMA Mobile Phones. It started as a successor to the erstwhile Overseas Communication Services, and went on to become the premier provider of international voice and data services. (Source: http://www.tataindicom.com/) 17 Pandey shankar Ravi, “CDMA MOBILE PHONES: A Chicken-egg Situation”, http://voicendata.ciol.com/content/vNd100/2003/103062408.asp, June 24th 2003

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India being the second-most populous country in the world is considered as an emerging market by telecom players across the globe. Telecommunication sector in India is traced way back from 1851 (Annexure I). The telecommunication sector in India is divided into two segments: Fixed Service Provider (FSPs), and Cellular Services. Fixed line services consist of basic services, national or domestic long distance and international long distance services. The Government operators (BSNL 7 and MTNL 8 ) account for almost 90% of the revenues from basic services. 9 Private sector services are available only in selective urban areas, and collectively account for less than 5% of subscriptions. 10 However, private services focus on the business/corporate sector, and offer reliable, high-end services, such as leased lines, Integrated Services Digital Network (ISDN), Closed user group (CUG) and videoconferencing.

509-109-1 decision upset its GSM competitors with the fact that Reliance would be enjoying twice the opportunity to target subscribers, it was not the only operator in India to pursue a dual-technology strategy. Reliance received GSM spectrum for 14 new circles in 2008. 18 BNSL also went on to launch CDMA2000 1x EV -DO services in selected cities. This helped to take advantage of the demand for high-speed mobile data 19 among business users.

Group Company Airtel(GSM) Reliance (CDMA + GSM) Vodafone Essar(GSM) BSNL(GSM) IDEA(GSM) Tata (CDMA) Aircel(GSM) Spice(GSM) MTNL(GSM + WLL 20 ) BPL(GSM) HFCL (CDMA) Shyam (CDMA) Total (All India)

Total Subscribers 66825935 48696295 47466853 36997418 26140643 25476062 11491986 4497675 3350437 1331261 326150 108396 272709111

Source: “Group Company wise market share”, http://www.india-cellular.com/MarketShare.html

Cellular operators get ample revenue from international and domestic long distance telephony services. The reduction in tariffs for airtime, national long distance, international long distance, and handset prices has increased the demand subsequently. The mobile phone subscriber base in India skyrocketed to more than 149 million at the end of December 2006 showing a substantial growth of nearly 100% from about 75 million subscribers in December 2005 21 (Annexure II). The sector recorded the growth by an average rate 18

Kurup S Rajesh, “DoT, Trai differ over rollout obligation for dual-tech firms”, http://www.businessstandard.com/common/news_article.php?leftnm=10&bKeyFlag=BO&autono=323630, May 21st 2008 19 High speed data is the internet connectivity services provided by the telecom operators. 20 Wireless Local Loop. 21 Shrapnel Bis, “India Telecom Report 2007”, http://www.strategyanalytics.com/default.aspx?mod=ReportAbstractViewer&a0=3378, April 19th 2007

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Exhibit I Major Telecom Players and Their Market Shares

509-109-1 of 92.6% in the last five years to reach 75.9 million subscribers at the end of 2005, of which 77.7% were GSM subscribers and remaining CDMA customers. 22 This growth trend is continuing in full force, with the number of mobile customers increasing by 18.7% in the first three months of 2006 to reach 90.1 million. 23 Back in 1948, India’s teledensity 24 was only 0.02% which grew to 1.94% in 1998. 25 The New Telecom Policy of 1999 liberalised the Indian telecoms market and triggered the penetration level which reached to 7.17% in 2003, 9.2% in 2004 26 and 11.43% in 2006 and is expected to reach 18% 27 by March 2009 (Exhibit II). The increase in teledensity showed a positive sign for the entry of foreign players like Virgin mobile into India.

Exhibit II Tele-density

Tele density(%)

20

18

15 11.43

10

9.2

7.17

Tele density(%)

5 0

0.02 1948

1.94 1998

2003

2004

2006

2009

Year

Compiled by the authors from various sources

In an attempt to prevent many foreign players entering the sector, Telecommunication Regulatory Authority of India (TRAI) 31 has added an array of anti-hoarding conditions to the licenses, including locking them for a period to prevent early re-sale, and retaining fairly ambitious roll-out requirements both to deter carpetbaggers and to stimulate rural roll-out (Exhibit III).

22

Paradis Isabelle, “India's telecom growth is fulfilling its promises”, http://www.hottelecoms.com/cp-articleoctober2006.htm, October 2006 23 Ibid. 24 The number of telephones in use for every 100 individuals living within an area. A teledensity greater than 100 means there are more telephones than people. 25 Patel Ricken, “Prospects for e-Advocacy in the Global South”, http://groups.dowire.org/groups/research/files/f/134112007-03-21T170331Z/Prospects%20for%20e-Advocacy%20in%20the%20Global%20South_Jan_07.pdf, January 2007 26 Ibid. 27 “India’s teledensity to touch 18% by '09” http://us.rediff.com/money/2004/dec/28tele.htm, December 28th 2004 28 “India’s telecom growth is fulfilling its promises”, op.cit. 29 Ibid. 30 Ibid. 31 The Telecommunications Regulatory Authority of India or TRAI (established 1997) is the independent regulator established by the Government of India to regulate the telecommunications business in India.

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Broadband development, one of the major services of telecom players is in its infancy in India. At the end of 2004, the country only had 135,000 broadband customers; however this number had grown by 568.9% in 2005 to reach 903,000. 28 In the first quarter of 2006 alone, the number of broadband customers increased by 49.3% to reach 1.3 million. 29 For the new player – Virgin, there could not have been a better time to stage an entry. With over 1 billion inhabitants and a telecom market brimming with competition, India is today (2008) one of the world’s most dynamic and promising telecom markets, surpassing China in terms of market vitality. 30

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Exhibit III Key Issues for Foreign Cellular Players

Source: Shrapnel Bis, “India Telecom Report 2007”, http://www.strategyanalytics.com/default.aspx?mod=ReportAbstractViewer&a0=3378, April 19th 2007

The growth drivers of telecom market have been so intense that the penetration rates in metros are reaching near-saturation. Amongst Indian metros, Chennai has been rated to have 80% mobile penetration while Mumbai and Delhi are at around 70%. 32 With government offering tax breaks to attract companies to build cell phone towers in remote places, mobile marketing has shifted its focus from urban to rural India. All Cell phone companies came up with attractive packages to rural customers. BSNL is planning to relaunch its failed Grameen Sanchar Sewak scheme (GSS) in which the postman in rural areas carry mobile phones to rural residents in places without landlines so that they can make calls. The postmen are rewarded with a 20% commission on the calls made and 5% is given to the Department of Post. 33 Private players are also thinking along these lines for gaining penetration into rural markets. Airtel, which is the largest 34 private mobile service provider in India focuses on strengthening its brand image and enters into a tie up with shop owners in the remotest parts of the country. Airtel also focuses on passing information on crop weather, yields, fertilizers, etc. over mobile phones to the rural masses. Tata Tele services albeit a slow-mover in the market is successfully targeting rural markets using Tata Group distribution. It uses the distributors of Tata chemicals to hawk the telecom service to the customers who are loyal to the brand. Amidst this tug of war happening in the telecom industry, Richard Branson’s Virgin Telecom entered the Indian stage with its unique strategies. Virgin came into the Indian telecom market partnering with Tata Tele services (TTSL) as a franchisee.

Virgin Mobile’s Foray into India – Target ‘youngistan’ Virgin Mobile belonging to the UK-based Virgin group entered the Indian market to specifically tap the youth segment. The Virgin-TTSL tie- up also offers the first organised second-hand handset market in India. The company has done an extensive research on the customer usage in the rural market as it was a largely potential one and discovered that rural market demands simple phones with voice and text features. Branson plans to bring the second-hand phones to meet the bill. Virgin estimates that there are 500 million phones lying dead in the drawers in US. 35

32

Rajendran M, “The Great War”, http://www.businessworld.in/index.php/Telecom/The-Great-War.html, February 15th 2008 Ibid. 34 Chaterjee Surojit, “Bharti Airtel among top telecom companies in the world with 50 million wireless subscribers”, http://in.ibtimes.com/articles/20071117/bharti-airtel-sunil-mittal-telecommunications-mobile-phone-wireless-vodafonereliance.htm, November 17th 2007 35 “The Great War”, op.cit. 33

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¾ Rural coverage is the key issue facing Indian tele companies at present, as urban growth slows. Operators need to balance the high costs of roll-out to village areas against the likely low returns. Village phones are also an option for mobile operators to consider. ¾ Dual-technology roll-out is likely to be an important issue for some time to come, with operators maintaining twin CDMA and GSM networks. However, it is expected that in the long run, most operators will drift back to GSM-based solutions ¾ Spectrum allocation is a major issue In the Indian market, and it is hoped that the imminent spectrum distribution will ensure that the bulk of the available spectrum goes to the operators who will use it directly, rather than hoarding or re-selling it.

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Anil Sardana, managing director of TTSL countered these complaints stating, “This is not an MVNO agreement between Virgin and Tata Tele services. There is no airtime contract between us. Virgin Mobile is just another brand that the company would offer. It is us who will invest in infrastructure and get regulatory approvals and operate as a network service provider. Virgin, on its part, would just lend its brand and the value-added services (VAS) that come with it to us.” 40 TRAI gave a clean chit to the agreement after a thorough investigation and enquiry. According to a TRAI official, “All the companies explained their position to us and gave us the requisite information we needed. As a regulator, we were also able to understand how these agreements worked. After hearing out the companies and examining the information they submitted, we have found that they are not in any violation and government's revenues are not impacted.” 41 According to Agence France-Presse (AFP) 42 , the venture differentiates itself from their competitors by offering “more tailored and relevant” music, entertainment, news, sports and Bollywood contributions to youth. According to MA Madhusudan, chief executive officer, Virgin Mobile India, “Our research shows that youth have a high propensity to consume mobile services and are looking for a solution that gives them the flexibility to talk to their peers at rates that are pocket friendly.” 43 With a “Think Hatke” 44 philosophy, Virgin aims at youth and offers a wide range of new plans. Virgin Mobile India plans to quickly attract several million customers and thus is focused more on their distribution strategy. According to P Madhavan, chief sales and distribution officer, Virgin Mobile India on their retail and distribution strategy, “Our retail strategy has been built around a focused model that gives efficiencies to cater to a large segment of our target market. Our research shows that youth love to shop and for them ambience, choice and service experience play a critical role in influencing their buying decision. Bearing this in mind, we have tied up with a host of modern retail outlets including Big C, Sangeetha, The Mobile Store and Univercell in the state to retail our products.” 45 Virgin Mobile has been taking a number of initiatives to

36 Troaca Florin, “Virgin Mobile Brings India its First National Mobile Service for Young People - In collaboration with Tata Teleservices”, http://news.softpedia.com/news/Virgin-Mobile-Brings-India-its-First-National-Mobile-Service-for-YoungPeople-80115.shtml 37 A MVNO is a mobile operator that neither owns spectrum nor has its own network infrastructure. Instead, it buys airtime from cellular operators in bulk and resells it under its own branding. 38“ Mobile virtual network operators not viable in India: Mittal”, http://www.thaindian.com/newsportal/business/mobilevirtual-network-operators-not-viable-in-india-mittal_10035440.html, April 7th 2008 39 Ibid. 40 “Virgin Mobile enters India, but not as MVNO”, http://economictimes.indiatimes.com/News/News_By_Industry/Telecom/Virgin_Mobile_enters_India_but_not_as_MVNO/art icleshow/2832231.cms, March 3rd 2008 41Philip Thomas Joji, “Tata Tele-Virgin deal gets TRAI clean chit”, http://economictimes.indiatimes.com/News/News_By_Industry/Telecom/Tata_TeleVirgin_deal_gets_TRAI_clean_chit/articleshow/3131834.cms, June 16th 2008 42 Agence France-Presse (AFP) is the oldest news agency in the world, and one of the three largest with Associated Press and Reuters. 43 Ibid. 44 “Think differently”- Advertisement caption of Virgin mobile in India. 45 “Virgin Mobile eyes larger chunk of youth market”, http://www.dnaindia.com/report.asp?newsid=1176780&pageid=2, July 10th 2008

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Virgin Mobile India is said to be the country’s first national mobile service that focuses only on teenagers and young users. 36 Usually Virgin enters as a Mobile Virtual Network Operator (MVNO) 37 wherever it enters into operations. India doesn’t permit MVNOs. As Virgin Mobile India does not have a network of its own; it operates by collaborating with TTSL in India. There was controversy during its initial launch in India when industry experts opined that an operation of Virgin with TTSL was akin to an MVNO. “I don’t think MVNOs can succeed at the current rates,” 38 Mittal, Bharti Group chairman and managing director commented at a conference held by the Confederation of Indian Industry (CII). Other operators opined this as a “backdoor entry”, and urged the government to clarify on the partnership as it was on the lines of a MVNO. 39 The Cellular Operators Association of India shot off a letter to the Department of Telecom (DoT) seeking clarity on whether or not MVNOs are allowed in India (Exhibit IV).

509-109-1 attract the youth segment to adopt its services. This includes attractive and sleek handsets and many innovative offers. They were the pioneers to offer credit for incoming calls (Exhibit V). Exhibit IV Excerpt of the COAI (Cellular Operators Association of India) Letter “As far as we are aware, the present telecom policy does not either permit MVNO or the reselling of airtime. In light of the above, we would appreciate if you could inform us whether and when the policy has been amended to allow for introduction of MVNOs,” the COAI letter said. 46

“It may be appreciated that if the company is acting/ operating as a franchisee of Tata Tele services, then its services can be retailed only under the Tata Indicom brand. It is evident from the launch presentation that this is not the case. We would deeply appreciate if you could kindly look into this matter and clarify as to in what capacity Virgin Mobile is entering the Indian market and the terms and conditions thereof.” Compiled by the authors from: (a) http://www.thehindubusinessline.com/2008/02/29/stories/2008022952511200.htm (b) http://www.thehindubusinessline.com/2007/11/20/stories/2007112052910100.htm

Virgin mobile did a thorough customer survey and found out the niche market they have to aim at. “There are more than 215 million Indians aged between 14 -25 years. Over the next three years, we expect this segment to be adding over 50 million new youth subscribers and to have mobile service revenues of over 350 billion dollars. By focusing exclusively on a single segment and by continuing to deliver innovative services that cater to this segment’s distinct needs, we believe Virgin Mobile can capture more than 10 percent of this incremental market within 3 years of launch,” said Jamie Heywood, deputy CEO, Virgin Mobile India. 47 “At Virgin Mobile we believe that the existing operators are all pursuing the same strategy: to get as many subscribers as quickly as possible,” 48 added Branson. However, he considers the deal with TTSL as the best option available as India has a closed policy regarding foreign players. He comments, “India is very close to when it comes to foreigners competing within your marketplace. If you want to set up a domestic airline in India, it’s impossible. If you want to move into financial services in India it is near on impossible. If you want to set up a mobile phone MVNO it’s impossible. We are very pleased that we have managed to do an agreement with Tata because Tata has got a great network in India. It is a network we can actually get through when you make a call, which with most of the other networks you can’t. We have got a great brand particularly for the younger market in India. So, doing a sort of branding cum knowledge-based deal rather than MVNO has been a compromise. But at least we are up and running and Virgin Mobile is available from today in India, and Indians will appreciate the service that we are going to offer them.” 49

46

“Virgin’s entry into India telecom space near certain”, http://www.thehindubusinessline.com/2008/02/29/stories/2008022952511200.htm, February 29th 2008 47 “Tata Teleservices launches Virgin Mobile branded services to India’s youth”, http://www.virginmobile.in/downloads/Press_Release.pdf, March 2nd 2008 48 Ibid. 49 “Branson: Gimmick or 21st century master strategist?”, op.cit.

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“On going through the presentation (made during the launch), it may be noted that there is absolutely no mention of Tata Tele services or the Tata Indicom brand in the entire presentation nor is there any information as to the capacity in which Virgin Mobile is entering the Indian mobile market.

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¾ Get paid to receive calls: Virgin Mobile customers will get 10 paise credit for every incoming minute they receive from any network ¾ Easy Handset upgrades: Virgin Mobile is India’s first CDMA service where all customers will be on RUIM (SIM)-based phones, thereby giving them the convenience of upgrading their phones without having to change their number or re-enter their address book ¾ True Care: All Virgin Mobile customers will be called back by the same call center agent to address their query ¾ Call more for less: After the 1st 2 mins of calls each day (which will be charged at INR 1) all Virgin Mobile customers nationwide will automatically be able to call any local network at any time of day for only 50 paise per minute with no commitment or extra charge ¾ One Touch access to V-Bytes: 100% of Virgin Mobile-branded handsets will have a simple one-touch access button that takes customers directly to our unique VBytes portal ¾ Safe Secrets: All Virgin Mobile RUIM (SIM) cards will have a secret folder where SMSs can be stored and password-locked to keep them safe from prying eyes ¾ ‘100% colour, 100% FM’ handsets: Virgin Mobile is the only CDMA mobile service brand to offer its customers a handset range that is both 100% colour and 100% FM-radio enabled ¾ 100% Bling: Virgin Mobile offers India’s first mirror finished clam shell phone with dual screens for less than INR 2500 ¾ Unlimited access to V-Bytes for a simple daily charge: Virgin Mobile customers can enjoy unlimited access to our unique. VBytes data portal, including free Virgin selected content, for a simple daily charge of only INR 5 ¾ TGI weekend Bolt-on: Virgin Mobile customers can enjoy a weekend of extreme calling and texting by paying only INR 18 to get 100 local SMS and all local mobile calls at 30 paise from Friday to Sunday. Source: “Tata Teleservices launches Virgin Mobile branded services to India’s youth”, http://www.virginmobile.in/downloads/Press_Release.pdf,March 2nd 2008

With a market share of less than 10% 50 , (Exhibit VI) the deal could help Tata to get the market push it needs. Tata was successful in carrying out the proposal and convincingly brought in Virgin. Tata managing only a sixth place amongst telecom majors in India saw the opportunity to capture further market share. “We are very excited about our association with the Virgin Group. Their service innovation and strong brand resonance with the youth segment will allow Tata Teleservices to offer a truly world-class service experience to our youth subscribers. This association also supports our efforts to be the fastest growing mobile network in India,” declared Anil Sardana, managing director of Tata Teleservices. 51 Under the terms of deal, Tata will be paying Virgin a royalty for the use of its brand and a share, per subscriber, of its future revenue whereas Virgin is expected to license the Virgin Mobile brand and technology expertise in the area of value-added services (VAS) which includes video calling, where the user can see the person he/she talking to, video clips of celebrity interviews, film snippets, comedy clips, games, and a wide coverage on news and sports and handsets to TTSL. This also provides TTSL a competitive edge in using Virgin's core expertise in marketing and service innovation to create offerings mainly targeted at the youth segment.

50

Prasad Anurag, “Virgin Territory” http://www.outlookbusiness.com/inner.aspx?articleid=1121&subcatgid=576&editionid=33&catgid=29 51 “Tata Teleservices launches Virgin Mobile branded services to India’s youth”, op.cit.

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Exhibit V VIRGIN MOBILE FIRSTS

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Source: Prasad Anurag, “Virgin Territory” http://www.outlookbusiness.com/inner.aspx?articleid=1121&subcatgid=576&editionid=33&catgid=29

According to Madhusudhan Gupta, a senior Research Analyst at Gartner, “It’s a win-win situation for both the sides, especially when CDMA has not done that well.” 52 Researches made by experts say that India is home to 215 million people in the 14-25 age group and the urban youth mobile users is expected to increase 50 million between 2008–2010. 53 According to telecom analysts, high-net-worth customers unlikely shift operators for a new brand. Virgin mobile would thus be left with only low-paying and cost conscious users as the target group. Can Virgin mobile compete on these terms and move up the average revenue per user (ARPU) chain? “The cost and financial implications of sharing a network can be huge. The time-frame for a decent return on investment may also be small, and profits may also get affected,” says Gartner’s Gupta. 54 “The brand hype will die after sometime, and then it will all boil down to quality of service, pricing and product suitability,” says an analyst who tracks telecom companies. 55 Other players view Virgin’s entry as a backdoor-entry. While commenting on his entry to India, Branson opines, “If you can’t make it in India, You won’t make it anywhere.” 56 Will the appealing foreign brand name, Indianised network, segmented market and huge investment optimise Virgin’s profits and position?

52

“Virgin Territory”, op.cit. Ibid. 54 Ibid. 55 Ibid. 56 Kripalani Manjeet, “Virgin’s big move”, http://www.businessweek.com/globalbiz/blog/eyeonasia/archives/2008/03/virgins_big_ind.html, March 2nd 2008 53

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Purchased for use on the Issues in Marketing, at Warwick Business School. Taught by Tamara Ansons, from 1-Oct-2012 to 10-Dec-2012. Order ref 132875. Usage permitted only within these parameters otherwise contact [email protected]

Exhibit VI Tata Tele Services- Makes the Call

509-109-1 Annexure I History of Indian Telecommunications

The first wind of reforms in telecommunications sector began to flow in 1980s when the private sector was allowed in telecommunications equipment manufacturing. In 1985, Department of Telecommunications (DOT) was established. It was an exclusive provider of domestic and longdistance service that would be its own regulator (separate from the postal system). In 1986, two wholly government-owned companies were created: the Videsh Sanchar Nigam Limited (VSNL) for international telecommunications and Mahanagar Telephone Nigam Limited (MTNL) for service in metropolitan areas. In 1990s, telecommunications sector benefited from the general opening up of the economy. Also, examples of telecom revolution in many other countries, which resulted in better quality of service and lower tariffs, led Indian policy makers to initiate a change process finally resulting in opening up of telecom services sector for the private sector. National Telecom Policy (NTP) 1994 was the first attempt to give a comprehensive roadmap for the Indian telecommunications sector. In 1997, Telecom Regulatory Authority of India (TRAI) was created. TRAI was formed to act as a regulator to facilitate the growth of the telecom sector. New National Telecom Policy was adopted in 1999 and cellular services were also launched in the same year. Source: “Indian telecom industry”, http://www.iloveindia.com/economy-of-india/telecom-industry.html

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Purchased for use on the Issues in Marketing, at Warwick Business School. Taught by Tamara Ansons, from 1-Oct-2012 to 10-Dec-2012. Order ref 132875. Usage permitted only within these parameters otherwise contact [email protected]

Indian Telecommunications laid its foot in 1851, when the first operational land lines were laid by the government near Calcutta (seat of British power). The telephone services were introduced in India in 1881. In 1883 telephone services were merged with the postal system. Indian Radio Telegraph Company (IRT) was formed in 1923. After independence in 1947, all the foreign telecommunication companies were nationalized to form the Posts, Telephone and Telegraph (PTT), a monopoly run by the government's Ministry of Communications. Telecom sector was considered as a strategic service and the government considered it best to bring under state's control.

Purchased for use on the Issues in Marketing, at Warwick Business School. Taught by Tamara Ansons, from 1-Oct-2012 to 10-Dec-2012. Order ref 132875. Usage permitted only within these parameters otherwise contact [email protected]

509-109-1

Annexure- II Cellular Phone Subscribers in India as on May 31st 2008

Source: “Cellphone subscriber in India”, http://www.india-cellular.com/Cellular-Subscribers.html

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