It was a high-flying, attention-getting stunt that was played out over Bangalore skies. On a sunny morning Kannada superstar Sudeep flew to 10,000 ft in a light aeroplane and then jumped. As his parachute unfurled so did a banner for the newest pre-paid mobile scheme to hit town.
In Delhi, it was showbiz razzmatazz of a different sort. A model wearing a cowboy outfit complete with a gunbelt and Stetson hat startled journalists by whipping out his pistol and shooting at the bulls-eye just as a press conference got underway.
Reliance Infocomm is dialling up all the stunts it can, to catch the eye of the public. It is gambling its future on storming the pre-paid market -- where it has, so far, been conspicuous by its absence. As always, it is moving into the new market aggressively, with the promise of slashing prices.
How ambitious are Reliance's plans? Inevitably, the company is talking big numbers. It is hoping to rope in 4 million new customers in the next two or three months through the pre-paid offer.
It will also make attractive offers to existing customers and hopes that 30 per cent to 40 per cent of its existing post-paid customers will shift to the pre-paid scheme.
The company is also re-focusing for the next one year -- it hopes to have between 17 million and 18 million customers by next March. But, unlike the present, only 3.5 million -- around 20 per cent of the total subscriber base -- will be post-paid customers.
The new pre-paid offer marks a fundamental shift in Reliance's strategy. In the last year it has built a gigantic post-paid customer base of over 6 million. But the company is having a tough time handling this vast number.
Says Naveen Pasricha head of sales, Reliance Infocomm: "We are following the international trend where pre-paid is the dominant market. We have 6 million post-paid customers and after a particular point they become too unwieldy to manage."
Pasricha points to several good reasons for moving full force into the pre-paid market. First, there's the obvious advantage that cash is collected beforehand. Second, the cost of collecting bills -- which is nearly 1 per cent to 3 per cent of revenue -- vanishes.
Of course, moving to pre-paid has its disadvantages. Pre-paid customers are more parsimonious and think twice before reaching for their phones. Therefore, the average revenue per user, or ARPU, drops sharply.
Currently, Reliance has ARPUs of around Rs 1,000 a month and that will drop to between Rs 750 and Rs 800. Nevertheless, Reliance hopes this will be neutralised by the larger subscription base and the ease of collecting money.
Why is Reliance changing course in midstream? Competitors and analysts say the company is facing the brutal reality that large numbers of customers -- lured by aggressive post-paid schemes -- haven't been paying their bills.
Some industry sources say bad debts are hovering around 13 per cent but others say it is even higher. Reliance's spokesman refused to comment on the issue.
That's in sharp contrast to the GSM operators who have been laughing all the way to the bank after slashing bad debts from 9 per cent two years ago to around 3.5 per cent of revenue.
Two years ago, the GSM operators depended heavily on post-paid customers so the lesson to be drawn from their experiences doesn't need to be spelt out.
Says a senior executive of a leading telecom company: "Reliance's post-paid strategy was beset with problems because customers did not pay the bill. By offering post-paid customers a pre-paid option, the company is trying to recover some of those dues upfront and cut losses."
In fact, the executive predicts that Reliance will go one step further and offer customers who haven't paid their dues an amnesty scheme under which dues will be converted into free minutes if payment is made upfront. Reliance won't discuss such details.
Is the fear of the Reliance juggernaut moving into the pre-paid segment giving GSM operators sleepless nights? After all, Reliance Infocomm's Monsoon Hungama offer of a phone for Rs 501 was a runaway success. Monsoon Hungama pushed Reliance to the top of the telecom heap in terms of subscribers.
Opinion is divided on whether the new offer will create a similar tidal wave. Most cellular operators say customers won't benefit hugely from the Reliance offer.
Says Manoj Kohli, president, mobility, Bharti Televentures: "GSM handsets have fallen dramatically and are available at Rs 1,500. Companies like us are offering flexible pre-paid options of as less than Rs 50. So customers can stay mobile at sub-Rs 2,000. Why should they spend more?" Adds Dilip Modi, co-CEO, Spice Telecom: "I don't see any churn of our customers happening at all. I think the market will only grow faster."
Their confidence is also based on how customers have acted in recent months. The number of GSM users has climbed from around 17 million in August to roughly 23 million in January.
In January they added 1.37 million new customers compared to Reliance's 179,000. The Reliance decline came after it withdrew the bestselling Monsoon Hungama and interconnect charges rose steeply.
Not everyone agrees with the relaxed attitude being adopted by many cellphone companies. Some analysts believe Reliance's offer could once again be a killer.
Says Sanjay Mehta, telelcom head, Ernst & Young: "The offer locks the customer for one year so there is no churn. It offers unique USPs -- you get incoming calls and SMS despite not recharging. For Reliance it is OK because it will earn money from inter-connection charges."
Reliance's competitors, for the most part, don't agree. In fact, they say earlier offers were tougher to cope with. Says a rival: "Bundling of phones is no big deal and we can easily make a similar counter offer." More importantly, many companies already offer phones bundled with free talk time and subsidise the phones.
A few months ago Bharti offered customers a Motorola handset bundled with Rs 1,800 worth of talktime free for Rs 3,299. If needed, Bharti executives say, schemes like this can be brought to the forefront. The GSM operators are also working on a plan to increase the talktime component in their recharge coupons.
For the customer, the offer of a free phone is probably the most interesting part of the Reliance offer. But rivals say Reliance has been forced to make this move because the CDMA phones it uses are costly and not freely available. So the company could not have attracted large numbers of customers unless it offered the phone at a subsidised rate.
Says a rival CEO of a GSM mobile company "It's not a long term sustainable model because you are not making any return on your investment if you give free talktime. He says this is demonstrated by the fact that Reliance has withdrawn the Monsoon Hungama offer, hiked the upfront cost of buying a post-paid phone and raised tariffs. "The same will happen with the pre-paid offer," says the executive."
Also, it's clear Reliance isn't cutting prices as dramatically as it did last year. Some rivals say it moved aggressively in its first year because it needed to carve out a niche for itself in the mind of both the customer and the regulator.
This time it doesn't seem so keen on a price war. Says a telelcom analyst: "The fact that they pegged the airtime rates to that of GSM in pre-paid rather than dropping them is a clear indication that they are looking at returns now. That is good for the market."
But there could be complications ahead for Reliance. Take the retailers who must now hawk the new product. At one level, they earn a better return on the Reliance packs: around Rs 300 and above for every pre-paid connection sold. By contrast, they earn about Rs 100 on selling a GSM SIM card and Rs 50 for a charge coupon.
But on the flip side, retailers selling Reliance pre-paid packages have to make a large upfront investment, which includes paying for the phone and the 10 coupons. Laments a Delhi based dealer who also stocks GSM pre paid cards: "There is no credit support from the company and our investment is large. So we are waiting and watching."
Worse, many fear that the retailers could be in serious trouble as they are try to unbundle the offer to reduce the upfront cost for customers.
That means they will sell the phone with, say, two coupons. Rivals say that some retailers are ready to sell the phones, which come pre-loaded with two coupons (Rs 400 of talk time) at over Rs 1,000. The customer would have the option to buy the eight remaining coupons later.
But a Reliance spokesman says it is committed to sell the offer bundled together and will examine any case of retailers unbundling the offer.
Says a senior executive of a leading GSM player: "This is good for the company which can show a large subscriber base and would have recovered the handset cost upfront from the retailer. That will be unlike the Monsoon Hungama scheme where customers disappeared."
But this could be a risky game for the retailer who might be left holding large numbers of unused cellphone coupons that nobody wants. "So in the new pre-paid scheme the losses have been passed on to the retailer instead of to the company," says a rival. A Reliance spokesman, however, says the company will keep a watch on what retailers are doing.
The other challenge for Reliance is logistics: to ensure that the product is available in a large number of outlets. "Reliance has to expand this network if it wants to reach the customers as the majority of the pre-paid outlets won't stack handsets," says the Bharti executive.
But Reliance is already aware of the problems and -- as always -- it has an ambitious rollout plan. The pre-paid card launch is being supported by an over Rs 60-crore (Rs 600-million) budget to be spent in the next two to three months.
The company plans to take 5,000 spots in 40 TV channels. It has booked 1 million sq ft of space on hoardings across the country and will insert ads in over 70 publications in national and regional languages.
To ensure that the product is available at the customer's doorstep Reliance says as many as 15,000 outlets across the country will stack the handsets. And a staggering 70,000 outlets will sell the recharge coupons. It has also appointed 600 exclusive distributors who will only sell the pre-paid offering
Reliance is banking heavily on its new pre-paid strategy. But this time GSM operators are confident that the Reliance offer won't turn the market topsy-turvy. And they are ready for the next round in the great telecom wars.
The pre-paid mantra
- Why should mobile phone users opt for the new pre-paid scheme that Reliance Infocomm is offering? For an entry price of Rs 3,500 Reliance is offering a Motorola C 131 mobile phone with 10 vouchers worth Rs 3,240 (that gives talktime of Rs 2,000).
- In simple terms it means that customers will virtually get the phone free rather than having to buy it as they would if they opted for a GSM pre-paid scheme. Of course, Reliance is offering other schemes with a higher entry cost with more free talk time.
- That's not the only advantage. The Reliance coupons must be used within six months. But after that period expires there's a six-month grace period during which customers can receive calls and SMS messages without recharing their account. That's a facility that no GSM operator offers.
- But customers who were hoping that Reliance would bring prices crashing down -- like they did last year -- will be disappointed. Airtime tariffs (the cost of calls per minute) are almost the same as the GSM operators.
- That's unlike what Reliance Infocomm did last year when its post-paid offers were substantially cheaper than the GSM players. For instance, there was its headline-grabbing Reliance to Reliance call anywhere in the country which cost 40 paise.
- This time round there are no such tantalising offers. So customers would do well to keep an eye on their bills and use their phones more carefully than before.
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