Business India

India’s telecom firms are bleeding because managers sell connectivity like toothpaste

India’s telecom firms are bleeding because managers sell connectivity like toothpaste

“Buy one, get one free.” “Buy two, get three free.” These may be good for fast-moving consumer goods (FMCG) like soaps, shampoos, and shirts. But that strategy, when applied to telecom—”Buy data plans, get voice calls and messages free”—is destroying the sector.

“There was no telecom professional bred in this country. The bulk of the people hired by the telecom sector more than 10 years ago were either from Unilever, Pepsico, Coke, or Xerox,” Sanjay Kapoor, former CEO of India’s biggest telecom firm, Airtel, told Quartz. And those strategies seem to have run their course, he added. Kapoor himself was from Xerox’s India venture, which was in partnership with the ModiCorp, later known as the Spice Group.

In a market where 90 out of 100 people in a given area (tele-density) already have at least one telephone connection, the challenge is to retain customers and build brand loyalty for pricing power. Who knows to work that better than the former FMCG honchos, right? Wrong.

“FMCG theories were applied when the telecom biz was all about voice. It isn’t anymore. Advertising about the touchy-feely stuff is not going to work. Yes, you need the emotional connect, but what sustains over time is the customer experience. If you cut and paste FMCG strategies, it may or may not work,” Kapoor said.

Oh, that appetite
Most Indians may be first-time phone users, but there are nearly 650 million in all and over 300 million of them have smartphones. And they are now consuming data by the gallon.

Indians use upto 1.5 billion gigabytes of mobile data every month, the most in the world. This has a lot to do with the tariff war triggered by Reliance Jio, the latest entrant to the world’s second-largest telecom market.

However, the hyper competition in pricing has led to an insufferable quality of services. Call drops are a menace and data connectivity patchy, so much so that the government has had to crack the whip repeatedly.

Consumers, too, have begun demanding better user experience. A whole lot of them, at least higher in the pyramid, would even be willing to pay for improved services.

“They (consumers) are now used to cheap tariffs. But they are also paying for Hotstar, Netflix, and things like that. People know where value is, and seem willing to pay for it,” Mahesh Uppal, telecom analyst and director at consultancy ComFirst, told Quartz.

The wrong people
Do the top telecom executives then recognise the real opportunities? Or are they missing the woods for the trees? “Given the setbacks the sector has had in recent months, it would seem that the leadership had a limited appreciation of regulation, notwithstanding their acumen in sales and marketing,” Uppal said.

If what Indian telecom needs today is improved user experience with better connectivity and an add-on services ecosystem, there’s another question: Where is the money for that?

Reliance Jio’s entry in 2016, with never-before tariffs, has led to a calamitous fight for dominance over the last 18 months. It dragged down Airtel’s profit by a staggering 90% in the June-September 2017 quarter while Idea swung to a loss of over Rs1,100 crore, 11 times worse than a year earlier. British telecom major Vodafone had to write down the value of its India business by a mind-boggling 5 billion euros, even as it worked a merger with Idea to take on its competitors.

“You have built a market that expects you to give 35GB of data for a monthly price of Rs400 ($6.25) per month. How will you make money? In the US today, you won’t get more than 3-4 GB data for $100 a month. Wireless networks are not built to give you 35GB of data a month,” Kapoor said.

Meanwhile, regulatory changes like the cut in inter-connect usage charges and international termination charges will further dent the earnings of Indian operators, excluding Jio, analysts said.

Indian telecom has been a hyper-competitive space for over a decade now. A few years ago, there were nearly 15 players fighting for a fraction of the pie that exists today. The smaller players have fallen by the wayside, but the margins have not improved for the survivors.

That is why the game and strategies must change—from thinking like FMCG to thinking like a service provider, unlike selling soaps and shampoos to more like selling salon services.

Courtesy: Quartz India