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Cover Story
 

Enter ‘Tactical’ Strategy
In a Superlative & most Insightful analysis, B&E Documents how Corporate Leaders have Transformed their Organisations & Implemented continental strategic shifts that have Rewritten Global Management case books
Issue Date - 17/02/2011
 
The Mumbai-based company entered into the telecom space via the Wireless in Local Loop (WLL) route, hence saving a huge license cost on the premium mobile service. Allegations were levelled against the then telecom minister Pramod Mahajan for being hand in glove with the Ambanis and making its entry easier and cheaper. RCOM today is the number one player in the CDMA space. Post 2005, under the leadership of Anil Ambani, RCOM continued expanding its GSM services. Its entry into the GSM had equally shocking outcomes. RCOM’s GSM SIM cards were sold in the market at Rs.25. The cost for retailers was Rs.10 and they were given additional Rs.40 per SIM card after the activation, luring enough to push RCOM’s SIMs. The connection cost was  ? th of competition’s offering in the market at that time. New subscribers were given a talk time worth Rs.10 every day for three months, despite the fact that the RCOM has to pay 30 paise per minute as termination charges for every call made out of their network.

Competitors alleged it was a gimmick that RCOM played to get additional spectrum. As per the rule, a new incumbent operator gets a start up license of 4.4Mhz and gets another 1.8Mhz in the two prominent metros (Delhi & Mumbai), once the subscriber base touches the 500,000 mark. Today, RCOM has a little over 10% market share in the GSM space, at least 4% more than Tata Teleservices, another dual technology player.  

Behind the veil, RCOM smartly entered into the organised mobile handset market, estimated at around Rs.200 billion. After the launch of the GSM operations, where it spent Rs.100 billon for a pan India rollout, the company placed a huge order to handset vendors, including LG, Samsung, Motorola, Sony Ericsson, Fly, Spice et al. Sources within the industry say that the entire order was of 7 million handsets worth $770 million. RCOM now has a retail presence of around 2500  outlets, stronger than other organised players – The Mobile Store, Hotspot and Subhiksha. The company benefitted from its huge volumes and began to get significant margins.

RCOM’s market capitalisation grew from Rs.229 billion in 2007 to Rs.383.83 billion in 2010. But its net profit continue to see ups and downs. The net profit dipped to Rs.465.5 billion in FY 2010 from Rs.604.49 billion in FY 2009. Similarly, RCOM continues to struggle in order to increase its  ARPU. It has the lowest ARPU among all the listed players in the space. While RCOM has a ARPU of Rs.122, its competitors Idea and Airtel have ARPUs of Rs.168 and Rs.198 respectively.

The company is under a huge debt of Rs.310 billion today. Recently, RCOM has taken  a $1.33 billion loan from China Development Bank to bride the gap. A. N. Singh, analyst at India Infoline explains the logic, “The differential between the lending rates in India  and China is close to 5-6%. This gives enough scope and, in the case of ADAG group, cumulatively they have saved around $100 million a year.”

RCOM has gained tremendously in terms of customer additions over the past decade due to aggressive pricing. However, investments in the GSM network and now in 3G have compelled it to take a lot of debt. The only way out is to increase ARPUs to leverage their huge subscriber base and to reach out to the cream in the market. 3G will be an important weapon in their arsenal. It will be interesting to see how Anil will capitalise on this next big game changer in the telecom sector.

 
Shifts that really shaped our destinies

Evolving business outlook, changes in technology and changes in client demands are changes that have come about as a result of natural evolution and globalisation. And as much as these have affected individuals and companies in the past, these have also shaped the destinies of nations
Coordinated by : Sanchit Verma

In the last decade, economic events and major shifts in the competitive forces shaped industries and have caused many companies to completely rethink their business models and strategic plans. To their peril, many firms let their strategic planning efforts lapse into a meaningless exercise in goal setting – getting better at doing more of the same - only to find out the assumptions under which they have been operating their business are no longer valid. To cure this, it is crucial to use a disciplined thought-process to assess how economic and industry dynamics are likely to play out, and then create an effective strategic plan to confront this reality.

Globalisation has resulted in the rise of nations & of people. Global poverty levels have dropped & living standards have improved. India alone has pulled hundreds of millions out of poverty – in 1990, roughly 65% of Indians lived on less than $1.25/day; by 2008 that number had fallen to 41.6%. Between 1990 and 2008, Gross National Income (GNI) per capita, adjusted for PPP, increased more than five-fold in India. Other emerging nations have seen impressive increases too – GNI per capita doubled in South Africa, Brazil, and Mexico, and more than tripled in China.

Businesses in emerging economies also now play a much larger role in the global economy. Developing and emerging economies exported 42% of global merchandise in 2007, compared to just 28% in the 1990s. These same economies also compete with developed nations for global capital, nearly doubling their inward flow of global FDI from 18% in 1990 to 42% in 2009. The rise of new economic players has resulted in an intensely more competitive global economy, which has forced companies to upscale their operations and delivery capability by applying automation and standardization to their processes, a hallmark of which has been the emergence of multinational corporations based not just in the United States and other advanced industrialized nations, but in emerging markets as well.

          

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