Pink is now red as Hutch becomes Vodafone in India. Through a series of high-profile commercials showing Hutch’s celebrity pug ?? Cheeka ?? moving out of a pink kennel into a red one, and taglines that read “Hutch is now Vodafone” and “Change is good”, this September, amid a media blitz, Vodafone rolled out the company banner in what it calls “the country’s biggest rebranding exercise”.
“It is even larger than our own previous brand transitions and arguably as big as any in the world. It touches over 35 million customers across 400,000 shops,” noted Harit Nagpal, marketing and new business director, Vodafone Essar.
The company is reported to have spent $62.5 million on its makeover operation.Marketing experts say every dollar is well spent. After all, “Brand Hutch” has a substantial stamp value and, according to Millward Brown’s 2007 Brandz, ranks among the top 100 powerful brands globally. The idea therefore is to leverage the existing brand’s strength even while replacing it.
Observed Asim Ghosh, managing director, Vodafone Essar, at the time of the brand launch: “We’ve had a great innings as Hutch in India and the new beginning is not a departure from the fundamentals that created Hutch but an acceleration into the future with Vodafone’s global expertise.”
Despite the unpleasantness over the reported $1.7 billion tax liability claimed by the Income Tax Department arising out of the Hutch-Vodafone deal, the stated intention of Vodafone Essar vice-chairman, Arun Sarin, of “painting the town red”, has been largely realised.There is no escaping the almost ubiquitous Vodafone red speech bubble logo on billboards, store fronts, recharge kiosks, hoardings, banners and posters.It is important for Vodafone that the transformation pans out satisfactorily and the brand is firmly entrenched because it has high ambitions ?? to penetrate as much as 50 per cent of the Indian market from the current 17 per cent over the next five to seven years.
Spreading its banner across 16 circles is the first stage. The next stage is to emphasise continuity in order to remove apprehensions among current subscribers before ushering in Vodafone’s global strapline ?? “Make the most of now” ?? over the next few months.
The story so far…
While Vodafone is carefully treading the transition path, Hutch’s operations have undergone many shifts over the years. It has also undergone previous colour changes. In 2006, when it replaced Orange in Mumbai, it went from orange to pink.
An early entrant in the telecom space, Hutchison’s presence in India dates back to 1992. It initially tied up with local partners to establish a company licensed to provide GSM services in Mumbai.Commercial operations began in 1995.
Between 2000 and 2004, it extended its presence to 13 of the 23 defined telecom circles and was, till early 2007, the fourth largest mobile operator in the country.
In March 2007, Vodafone bought Hutchison Telecom International Limited’s 52 per cent stake in the company for $10.7 billion. Today, its partner Essar, through its subsidiaries, holds 33 per cent in the venture while 15 per cent is held jointly by Asim Ghosh and Analjit Singh.
As the industry sees it, the company’s shareholding pattern today has much more clarity today than it has had since its inception (although Hutchison Essar did take steps to spruce up its entire operations before the stake sale).
For Vodafone, the move into the Indian market was a logical step. It was already facing the typical challenges of growing its business in a near-saturated developed market, where it was forced to look beyond basic voice and SMS for new revenue streams. The move was consistent with its stated strategy of seeking selective acquisition opportunities in developing markets.
India is Vodafone’s 26th country of operation. With 40 partner networks and over 200 million customers worldwide, Vodafone brought in much-needed foreign investment, apart from the expertise of the world’s largest telecom player and international best practices.
Indian consumers could also expect global benefits such as cheaper roaming rates on Vodafone’s network in 25 countries, low prices for Vodafone handsets, and new entertainment services.
On the cards
Having taken up the India challenge, Sarin, who is known to be aggressive, announced that Vodafone Essar would win a 25-30 per cent market share by 2010.For this he has earmarked $2 billion as annual investment.
Though much of the management team of the erstwhile Hutchison Essar has been retained, a new forcefulness is visible.Over the past few months, Vodafone has been inching ahead. It has already moved up to third position from fourth, overtaking state-owned Bharat Sanchar Nigam Limited (BSNL).
As of August 2007, Bharti still remains the market leader in the mobile space with 46.81 million subscribers, followed by Reliance Communications Limited (RCL) with 35.4 million subscribers (including CDMA and GSM fixed line users) and Vodafone Essar with 34.11 million subscribers.
During a recent visit to India, Sarin pointed out that Vodafone’s new Indian business was delivering strong growth and its integration into the group had been progressing well.
Nevertheless, the top slot may not come easy in the face of tough competition from integrated players such as Bharti Airtel, RCL, BSNL and Tata, that are equally, if not more, ambitious and are investing heavily in networks and valueadded services.
What analysts see as Vodafone’s biggest asset is its brand. “Otherwise, it has neither unique strength nor any major weaknesses per se. It is an international player with a great deal of interest and experience in higher-end 3G services. All the rest is pretty standard stuff,” says telecom analyst Mahesh Uppal.
Romal Shetty, director, Risk Advisory Services, KPMG agrees: “Vodafone has a pretty good standing in the 16 circles it operates in and enjoys relatively higher ARPUs as compared to the rest of the players. Its strength lies in its branding, marketing and strong management team. Also, as and when 3G is allowed, Vodafone, having rolled out 3G in many countries, can bring in world-class solutions to India much faster than the other players.”
However, the one apparent handicap that Vodafone Essar faces compared to its opponents is that it is operational in only 16 circles while the others have a panIndian presence.
Today, even though it has the licence to operate in 22 circles, it is constrained by spectrum shortage. “Clearly, a late entrant is a late entrant. In that sense, it has to catch up with the rest of the players,” observes Uppal.
This problem will be compounded if the issue of spectrum is not urgently resolved. Even Sarin was candid about it when he pointed out that spectrum is the lifeblood of mobile services.
Analysts feel that perhaps Vodafone may do well to focus on increasing its service portfolio, with a greater emphasis on the enterprise segment where it is a bit weak at the moment. This would otherwise become a constraint to growth.
Bharti, for instance, has a much wider portfolio of services. Growing financially becomes easier because it has more services to generate revenue from.
Company officials, however, do not see any downside in focusing on one business line; the company is, after all, adding over a million and a half subscribers a month and is now in third position.
“Hutch is one of the few companies that have been carefully targeting things like actual revenues from customers. So, it has not played the numbers game in the same way as other companies have. There was a time when even though its subscribers were few, they were the more paying ones. So its ARPUs were better,” notes Uppal.
Besides, for over two decades, Vodafone has followed a simple strategy of becoming a global firm that offers only mobile services. And it has worked. It is the world’s largest wireless operator by revenue. However, in some regions, the company is looking at introducing broadband services as well.
In India, the thrust in the coming years will be essentially rural telephony. It has reportedly tied up with Chinese handset maker ZTE for low-cost handsets.
Analysts are a little cautious as far as Vodafone’s reach in this segment is concerned. “One thing that holds true for Vodafone Essar is that it has catered to the upper segment of society,” says Shetty.”The problem is that the next level of growth will be in tier II and tier III cities.Tier I is where 3G kind of services will experience growth. But subscribers will be coming from tier II and tier III cities. That is something it needs to change since Vodafone is still seen as an urban kind of a company.”
“It will have a bit of a challenge there. Also, the current ARPUs will not sustain in the rural areas. tain in the rural areas.
They will go up when there will be 3G-based services but the rural rollout will bring down ARPUs,” notes a telecom analyst from Macquarie Securities.
With the industry expecting real growth to come in mostly from the country’s hinterland, the competition has already chalked out aggressive plans. Key players such as Bharti, BSNL and RCL enjoy the advantage of already having some presence in the rural market, besides a deep knowledge of the Indian market.Vodafone has yet to acquire this as its operations so far have been limited more to the urban areas.
Still, it is not something the company cannot overcome. It has been a major player for many years; it will work out strategies to cater to the rural segment.”Users can look forward to a great many innovations from Vodafone in this sector,” says Sarin.
The weak link, analysts feel, could be its partner, Essar. Somehow, it is not clear whether it wants to be a long-term player in this business or wants to be in the business on its own. “Besides Vodafone Essar, the current operations do not have any Essar people. They are all ex-Hutch or Vodafone people. So Essar is not actually running the company on a day-to-day basis.Also, you need that experience to go overseas and acquire companies and I don’t think they will go abroad as a combined entity,” says Shetty.
Moreover, Essar has applied for a panIndian unified service licence individually, through one of its subsidiaries, in the recent spate of 350 licences sought from the government. This gives a completely different slant to Essar’s plans.
Finally, according to Uppal, the fact remains that Essar is not in “the A league”.”Essar is a qualitatively different type of partner if we compare it to any other player. The Tatas, the Birlas and Reliance have a very different league of partners,” he says.
Looking ahead
Notwithstanding competition and spectrum woes, the company is moving ahead with its plans to grab more market share. While the brand campaign has been addressing the transformation, the company is set to introduce low-cost handsets along with new services such as information, entertainment, mobile payments and money transfers ?? services it has worked on and strengthened in Europe and other markets.
It is expected that with RCL recently launching ultra-budget handsets at prices starting at Rs 777, Vodafone is likely to lower the entry barrier further by offering handset and service combines for Rs 666 by sourcing co-branded handsets from vendors such as ZTE.
By bringing in millions of low-cost handsets from across the globe into India, Vodafone Essar clearly sees an edge in distributing bundled handsets through its existing 400,000 distribution outlets.
Further, the company believes that the war in the telecom sector in the long term will not be on pricing but in value-added services (VAS). In the recent past, it has introduced a number of innovative services for its customers, with some good results.
Since Vodafone is a strong player in VAS, it will clearly extend its expertise and global tie-ups to India. For VAS, the company has partnerships with large players including YouTube for videos, MySpace for social networking, Google for search, Yahoo! for instant messaging, and eBay for online buying and selling.
In the pipeline are services such as Vodafone Passport, Vodafone Simply and Vodafone Live. Vodafone Passport allows customers to take their domestic tariff plan abroad for a small connection fee to be added per call. Given that the roaming charges in India are still high, Passport could become popular with Indians who travel abroad frequently.
Vodafone Essar is also planning to invest around $400 million for setting up a national fibre optic cable network for routing its mobile national long distance traffic.The move is in line with the company’s aim to become a national integrated telecom player like Bharti Airtel, BSNL and RCL.
Meanwhile, Vodafone, which has almost exited Bharti, its erstwhile partner in India, says it is looking at working with Bharti Infratel for tower sharing.
In the coming years, the company’s operational plan will be focused on the following strategy: expanding distribution and network coverage, lowering the total cost of network ownership, growing market share, and driving a customer-focused approach.
In all, given the supply-driven nature of the market and the aggressive expansion plans of operators, it is believed that the peak in net additions is yet to come. When it does come, Vodafone, with its expertise and motivation, will be aiming for a large chunk of it.
