After a turbulent 2012, last year saw most operators making concerted efforts and taking corrective measures to get back on track.Voice tariff hikes introduced earlier in the year ensured that operators regained some pricing power after registering low ARPUs for several years. Further, operators undertook large-scale weeding out of inactive subscribers to improve operational efficiencies. Reliance Communications (RCOM) removed about 10 million inactive subscribers from its network. The move cost the operator its position in the wireless pecking order and consequently, Idea Cellular emerged as the third largest operator in the country with a market share of 14.66 million as of October 2013. It followed Bharti Airtel (22.26 per cent) and Vodafone India (17.9 per cent), which continued to maintain their lead.

Data emerged as the new growth area. Data users’ contribution to operator service revenues has been increasing. During 2013, increasing the data service reach and making services available at affordable rates were central to operator strategies to drive service uptake. As a result, the year witnessed multiple rounds of data tariff cuts, with some operators reducing 3G data prices to the levels of 2G data rates.

Streamlining of operations by several companies during 2013 resulted in the emergence of a new class of regional players. After shutting down operations in several circles, operators such as Sistema Shyam TeleServices Limited (SSTL), Uninor and Videocon Telecom were able to realise higher revenues and operational growth. Uninor achieved break-even in five of its six operational circles, while Videocon registered the highest monthly net subscriber additions in its circles of operations. Lower competitive pressure also helped incumbent players in improving profitability to some extent.

tele.net takes a look at the leading telecom players and the key initiatives taken by them over the past year…

Bharti Airtel

Bharti Airtel has been the undisputed leader in the Indian telecom market. As of October 2013, it had 194.87 million wireless subscribers and 22.26 per cent market share. Globally, the company operates in 20 countries: 17 African countries besides India, Sri Lanka and Bangladesh. It is the world’s fifth largest telecom operator in terms of subscribers.

As compared to the period 2009-13, when the company witnessed a major dip in its financial performance, Bharti Airtel has reported significant improvements in its performance in 2013-14. Its operating profitability increased from 30.1 per cent in the first half of 2012-13 to 32.2 per cent in the first half of 2013-14. Further, on a year-on-year basis, its revenues increased by 10 per cent in the first half of 2013-14, primarily due to an improvement in the performance of the mobile business in India.

While subscriber additions slowed down during 2013, Airtel strong market position (it had a revenue market share of 28.6 per cent in the quarter ended September 2013) allowed it to increase tariffs and reduce free/discounted minutes, thereby leading to an improvement in the operational metrics. Although the financial performance of its African business was below expectations, the company was able to generate adequate cash to cover its capital costs and taxes.

During 2013, the biggest challenge for the company was servicing its debt. It undertook several fund-raising initiatives such as a $1.3 billion fresh issue of equity share capital to Qatar Foundation Endowment and Bharti Infratel Limited’s (a tower subsidiary) initial public offering. The proceeds were utilised to retire a part of its debt, which came down to $9.7 billion as of September 2013.

However, debt pressure is expected to remain high in the coming years as the operator needs funds to pay the one-time spectrum fee and to renew its licences for the Delhi and Kolkata circles in November 2014. Bharti is reportedly looking to raise $1 billion for the upcoming spectrum auctions and future acquisitions. While Airtel equity investors do not seem to be in agreement with the company about raising additional funds, the operator has been preparing a strategy to maintain a balance between debt and income. Airtel is reportedly planning to sell its African tower infrastructure business, which will help in reducing leverage.

Further, initiatives in the data space and enhancing rural services are likely to drive the company’s business growth over the next year. In fact, data services are a top priority for Airtel. The share of non-voice revenues in the operator’s total revenues from Indian operations stood at 16.5 per cent during the quarter ended September 2013.

Currently, the company has over 43 million mobile internet users and 6.4 million active 3G customers. Its 3G services are available in over 1,100 towns through home-grown and shared networks. In terms of 4G expansion, Airtel plans to launch services in Mumbai and Delhi, where it holds broadband wireless licences by virtue of its acquisition of Qualcomm’s broadband business in India. The operator is charting growth on the rural front as well. According to the Cellular Operators Association of India, Bharti had the largest number of GSM rural subscribers as of September 2013. This is a result of collaborations with value-added service (VAS) providers to offer applications in local languages.

Bharti Airtel has also been focusing on its enterprise customers to increase revenues. This business division will focus on delivering efficient cloud-based solutions, data centre services, managed video offerings, etc. The company set up a data centre in Mumbai in early 2013.

Going forward, improving network efficiency, reducing operational expenditure, increasing data revenues and rural telecom penetration, stabilising its international operations and improving revenue realisation will be important for the operator to maintain its leadership position.

Vodafone India

Vodafone India improved its operational and financial performance over the past year; however, it continued to face regulatory issues. The acquisition of additional spectrum in 14 circles in the November 2012 auctions helped the operator in consolidating its market position. As of October 2013, Vodafone India had a wireless customer base of 156.69 million, accounting for a market share of around 18 per cent. The share of visitor location register (VLR) customers in the company’s subscriber base stood at 95.7 per cent in October 2013, the second highest in the industry and much higher than the national average of 85.01 per cent.

Growing adoption of data services was a key growth driver for the company. During the quarter ended September 2013, data services accounted for 11 per cent of the operator’s total service revenue, as compared 9 per cent in the corresponding quarter in 2012. The overall service revenue grew by 3 per cent from £924 million during the quarter ended September 2012 to £947 million in the corresponding period in 2013. The company’s data revenue grew by 30 per cent from £85 million to £111 million during this period. As of September 2013, the operator had 42.5 million data subscribers, of which 4.5 million were 3G users.

Further, Vodafone India, which had for long been a pure-play GSM operator, expanded its portfolio by entering the wireline space in early 2013. It started offering internet leased line services to enterprises in a bandwidth of 64 kbps to 1 Gbps. The company is optimistic about its new venture and expects wireline services to contribute 20 per cent to its enterprise revenues over the next five years. Further, the company has been expanding its M-Pesa service to strengthen its presence in rural markets.

In terms of challenges, Vodafone’s disagreement with Indian tax authorities over its liabilities and with the Department of Telecommunications (DoT) on spectrum pricing, allocation and usage continued to impact its business growth and plans. Vodafone India has a tax liability of about Rs 112 billion for its acquisition of Hutchison Whampoa’s Indian telecom assets in 2007. Recently, an additional Rs 37 billion was demanded for the sale of Vodafone Plc’s call centre business. Further, earlier in the year, Vodafone opposed DoT’s decision to not allow the incumbents to renew their 2G licences and instead acquire spectrum through auctions, which are scheduled for February 2014.

The year, however, ended on a positive note with Vodafone Plc receiving the Foreign Investment Promotion Board’s (FIPB) approval to buy out its minority stakeholders. Meanwhile, customer acquisition and retention will continue to be the top priorities for the company in the coming year.

Idea Cellular

Idea Cellular performed better than several of its competitors during the past two years in terms of predictability, business models and financial track record. It continued to maintain steady financials despite the regulatory interventions that have impacted the overall telecom industry. The operator has been reporting profit growth on a year-on-year basis. Its net profit grew by 86 per cent from Rs 2.4 billion for the quarter ended September 2012 to Rs 4.48 billion for the corresponding quarter in 2013. Idea’s revenues grew by 19 per cent from Rs 53.14 billion to Rs 63.23 billion during this period.

The past year was a good one for the company in terms of operations as well. In September 2013, Idea Cellular overtook RCOM as the third largest operator in terms of subscriber base. This was mainly on account of the latter’s huge subscriber deactivation exercise. As of October 2013, Idea had a subscriber base of 128.37 million, accounting for about 15 per cent of the country’s total wireless subscriber base. Further, it had the highest VLR in the Indian telecom market, with over 97 per cent of active users on its network. Idea has also maintained its leadership position in terms of overall mobile number portability (MNP) additions since June 2011 (except for a brief period between October and December 2012). As of October 9, 2013, Idea had registered a net gain of 7.8 million MNP customers.

The company is betting big on data services. Its data subscriber base almost doubled from 18 million in the quarter ended September 2012 to about 34 million in the quarter ended September 2013. The contribution of data to overall service revenues increased from 5.4 per cent to 8.7 per cent during this period. To encourage data service uptake, the operator undertook several corrective measures. The key among them was making these services more affordable and increasing their reach to rural areas and small towns. The company introduced major tariff reductions for 2G and 3G services, and introduced competitively priced 3G handsets in the market. Most of these smartphones are priced below Rs 10,000.

Recently, Idea’s wholly owned mobile banking subsidiary received a five-year prepaid mobile wallet licence from the Reserve Bank of India, which will enable the operator to offer mobile payment services.

Further, to reduce its expenditure, particularly in light of the upcoming auctions, Idea Cellular increased the investment limit for overseas investors from 24 per cent to 49 per cent of the paid-up equity share capital. The company’s board passed a resolution to raise funds of up to Rs 30 billion through the qualified institutional placement route.

That said, regulatory hurdles proved to be a damper. The issue pertaining to Idea’s merger deal with Spice in 2008 continues to be a key point of disagreement between the operator and DoT.

RCOM

The past year was a mixed one for RCOM. While the operator signed several deals to increase operational efficiencies, paring its high debt continued to be a challenge.

In 2013, the key highlight for RCOM was signing infrastructure contracts with Mukesh Ambani-owned Reliance Jio Infocomm Limited. The companies signed a $200 million agreement for sharing an optic fibre cable (OFC)-based intercity network and a $2 billion tower-sharing deal. RCOM has securitised the proceeds from both these deals to partly repay its rupee debt, thereby saving significant interest costs. Meanwhile, another deal worth Rs 30 billion-Rs 35 billion for sharing of intra-city OFC between the companies is on the cards.

Further, in a bid to reduce the cost of running its networks, RCOM signed two  deals of $1 billion each with Alcatel-Lucent and Ericsson, which involved outsourcing the operator’s pan-Indian network management to the two vendors. RCOM also undertook an innovative 2G expansion drive through intra-circle roaming arrangements with Aircel, Loop Telecom and Tata Teleservices Limited (TTSL). Consequently, the operator now has access to an additional 10,000 base transceiver stations as well as improved reach in several circles. Further, these deals are likely to expand RCOM’s market by around 150 million customers.

In terms of financial performance, the company registered positive growth in profitability during the quarter ended September 2013, when, riding on a provisional write-back of Rs 4.41 billion, RCOM posted a sixfold growth in its consolidated net profit from Rs 1.02 billion in the quarter ended September 2012 to Rs 6.75 billion. However, its operating revenues grew by only 4 per cent during this period. RCOM’s net debt, which stood at Rs 411.69 billion (including Rs 38.42 billion on account of exchange rate variations) on September 30, 2013, continues to be the biggest hurdle for its business growth.

Moreover, the company has been losing market share to other incumbents. It slipped one position in the wireless pecking order and was ranked fourth in the segment following the deactivation of 10 million users in September 2013. However, the move brought about a significant improvement in RCOM’s VLR score from 76.22 per cent in September 2012 to 93.71 per cent in September 2013. Meanwhile, RCOM’s ARPU and minutes of usage continue to be lower than those of some of its peers.

Data services, along with the GSM service segment, were RCOM’s key focus areas during the past year. To drive 3G uptake, the operator significantly reduced tariffs and brought them at par with 2G data rates. The move benefited the company, which is reflected in the fact that its data traffic increased by 116 per cent between September 2012 and September 2013.

In the coming months, RCOM will continue to focus on the data segment. To this end, it has started utilising CDMA spectrum for providing high speed data services. Further, the enterprise business is expected to emerge as a key focus area for the company, contributing 30 per cent to its annual revenue growth over the next five years.

BSNL

Bharat Sanchar Nigam Limited (BSNL) continued to be in a tight spot throughout the year, facing huge losses and stiff competition from the private sector. During 2012-13, the operator reported a loss of

Rs 78.84 billion. This was BSNL’s fourth consecutive loss-making fiscal, although the losses have declined by 10.93 per cent as compared to Rs 88.51 billion in 2011-12. Operational issues, depleting reserves on account of spectrum outgo, declining wireline revenues, and growing manpower costs have taken a toll on the operator’s financial health.

Earlier in 2013, a group of ministers headed by P. Chidambaram was constituted to evaluate a Rs 150 billion bailout package for the operator. This included taking over the company’s debt, waiving the licence fees and spectrum charges for three financial years, and allowing BSNL to surrender its broadband wireless access (BWA) spectrum in six circles and refunding the amount to the operator. BSNL had sought a refund of Rs 67.25 billion for surrendering its BWA spectrum in select circles. The request, was recently approved by the Union Cabinet. BSNL has also sought Rs 80.45 billion from the government for a voluntary retirement scheme, which will be offered to over 70,000 employees. The operator had, moreover, written to DoT requesting the government to bear the Rs 120 billion one-time payment for excess 2G spectrum.

Competition from private players and a capacity crunch were the key challenges faced by BSNL during the year, while poor customer relationship management and quality of service were among the key factors that impacted its performance. As of October 2013, BSNL was ranked fifth in the mobile segment with 97.89 million subscribers. The loss in wireline subscribers has had a major impact on the operator as this segment has been its mainstay for years. As of October 2013, BSNL’s wireline user base stood at 19 million as compared to 40 million three years ago. The operator, however, has a comfortable lead in the broadband segment with 66.8 per cent market share as of October 2013.

During the past year, the company took several steps to address the issues impacting it. BSNL decided to revive its landline business by leveraging its wireline network to provide VAS such as broadband, IPTV and videoconferencing. In line with this strategy, the company’s landline network is being upgraded and modernised through the introduction of new IP-based next-generation network (NGN) switches, and integration of the customer care and billing platforms. There is also a growing focus on 3G/broadband and enterprise services. Besides, it launched commercial cloud computing services from its managed cloud platform-hosted internet data centre (IDC) at Ahmedabad. IDCs are also being set up in Mumbai, Faridabad, Jaipur, Ludhiana and Ghaziabad. BSNL earned about Rs 40 billion in revenues from the enterprise segment in 2012-13 and is expecting a growth of 25 per cent in the current fiscal.

Currently, the operator is replacing time division multiplexing exchanges (which are over 12 years old) with NGN equipment. It expects to add 40 million lines to strengthen its internet business and generate significant revenue by monetising its land and building assets, and by hiving off its tower infrastructure business into a separate entity in the next few years.

Aircel

Aircel, the Indian arm of Malaysian telecom operator Maxis Communications, was severely impacted by policy and regulatory uncertainty, apart from facing a huge debt burden. Aircel’s debt increased to Rs 240 billion during 2013, which affected its plan to make additional investments in 2G and 3G networks.

Facing severe margin pressure in 2013, Aircel took several steps to revive growth. It pruned operations in five circles – Madhya Pradesh, Gujarat, Haryana, Rajasthan and Punjab – to cut costs and reallocated its resources to more profitable circles.

Having launched 3G services in 2013 across 13 circles, Aircel was focusing on leveraging business opportunities offered by a growing data market. The operator positioned itself as a youth brand and a mobile internet company offering users voice and data services at affordable prices. To encourage data service uptake, Aircel reduced its 3G tariffs significantly and introduced innovative products such as the 3G dongle value pack, Pocket Buddies, and a full talktime prepaid pack.

The contribution of the 3G business to Aircel’s data revenues increased from 29 per cent in 2012 to 40 per cent in 2013. While the company’s 2G data base grew by 23 per cent in 2013, its 3G user base witnessed a growth of 74 per cent. With an increasing number of subscribers opting for 3G services, Aircel plans to decongest its network by offloading data traffic on to its Wi-Fi network.

TTSL

The past one year has been a challenging one for TTSL on account of poor financials, low subscriber growth, mounting debt and intense competition in the voice segment. Moreover, regulatory issues such as non-allocation of spectrum in the Delhi circle and a ban on 3G intra-circle roaming agreements have limited the expansion of mobile services.

As of October 2013, TTSL was ranked seventh in the Indian wireless space (with a subscriber market share of 7.25 per cent). As compared to this, in 2007, the operator was ranked amongst the top five players in this market. On the financial front, growing losses and a highly leveraged balance sheet are key issues for TTSL. It has accumulated huge debt due to the high 3G spectrum acquisition cost. It currently has a debt burden of around Rs 230 billion. During 2012-13, it incurred a net loss of Rs 48.58 billion on an operating income of Rs 107.99 billion. The operator’s weak financials have impacted its ability to secure additional funds to implement its expansion plans.

TTSL’s recent move of surrendering excess spectrum in several circles to avoid the Rs 15 billion one-time spectrum charge proves that the financial challenges are becoming difficult to address. TTSL has surrendered 20 MHz of CDMA spectrum to DoT in 14 circles. It vacated 1.25 MHz of spectrum in 12 circles, and 2.5 MHz each in Maharashtra and Andhra Pradesh. Consequently, TTSL, along with Tata Teleservices (Maharashtra) Limited, now has only 2.5 MHz of CDMA spectrum across circles, barring Delhi and Mumbai, where it has retained 3.75 MHz of airwaves.

The company spent a large part of 2013 in streamlining operations. It shut down CDMA mobile operations in some of its low-growth circles including Jammu & Kashmir, the Northeast and Assam. Further, it discontinued post-paid services in West Bengal and Bihar, while increasing prepaid tariffs. The infrastructure assets from these circles have been redeployed in high-revenue areas.

On the operational front, the data and enterprise segments emerged as key focus areas for the company. To improve its non-voice revenues, it aggressively expanded its 3G network coverage in its licensed circles. Further, the company’s high speed broadband services, which are provided under the Photon brand, gained significant traction in the past two years. To capitalise on this growth, the company launched the Photon Max broadband service based on EV-DO Rev. B technology in Mumbai, Kolkata, Chennai and a few cities in Uttar Pradesh. Further, TTSL reduced tariffs for select 2G and 3G data packs by up to 90 per cent to drive service adoption.

The company also increased its focus on the small and medium enterprise (SME) segment. In 2012-13, the SME segment contributed about 11 per cent to the company’s overall revenues, registering a 20 per cent year-on-year growth. The operator is targeting similar growth from the vertical in 2013-14 and is aiming at a market share of over 10 per cent. TTSL also plans to enter niche markets such as home surveillance and smart tracking solutions in the coming years.

Uninor

The operator has positioned itself as a low-cost service provider. Uninor claims that its tariffs, which are mostly offered as “sabse sata” plans, are 60 per cent lower than its competitors’. Further, it claims to have lower costs per minute (up to 40 per cent lower as compared to other players). This has enabled the company to achieve break even in five of the seven circles where it offers telecom services. In September 2013, Uninor achieved break even in Uttar Pradesh (West), Bihar and Jharkhand. Earlier, Uninor had achieved break even in Uttar Pradesh (East), Andhra Pradesh and Gujarat. It is looking forward to turning profitable in the Maharashtra circle in early 2014.

While Uninor is optimistic about growth in the near future, it faced several challenges when its Indian stakeholder, Unitech Wireless, sold its 32.75 per cent stake following a dispute with Norway-based joint venture (JV) partner Telenor. Subsequently, Telenor partnered with Lakshdeep Investment and Finance to form a new JV, Telewings Communications, to participate in the spectrum auction held in November 2012. The operator did not buy spectrum in seven circles including Mumbai, Kolkata and West Bengal and had to shut down operations in these circles as per the Supreme Court order that service providers exit circles for which they did not win spectrum in the auction. However, Uninor won 5 MHz of spectrum in the 1800 MHz band in the Andhra Pradesh, Bihar, Gujarat, Maharashtra, Uttar Pradesh (East and West) circles. This would allow the operator to continue telecom services through the new company for a period of 20 years. Together, these six circles account for over 50 per cent of India’s population and with a telecom penetration of 40 per cent, present major growth opportunities for Uninor.

SSTL

In 2013, SSTL entered the 3G market by launching its mobile broadband service, 3G PLUS. This shows SSTL’s increased focus on the data segment, where it offers services under the MBlaze brand. In this space, it plans to provide improved coverage and high speeds at low prices. The operator’s broadband services are priced 20 per cent lower than its competitors’. To drive the uptake of its 3G PLUS service, SSTL is firming up its handset strategy. The operator has partnered with device manufacturer Micromax. Beginning January 2014, it plans to sell 60,000 to 70,000 smartphones per month.

Currently operating in nine circles under the MTS brand, SSTL is looking to expand its presence across the country. The operator plans to participate in the upcoming spectrum auction and acquire 5 MHz of contiguous spectrum in the 800 MHz band. It is also exploring inorganic growth opportunities. With the government allowing 100 per cent foreign direct investment in the telecom sector, SSTL intends to pursue merger and acquisition opportunities in the CDMA segment. SSTL is reportedly in talks for a possible merger with TTSL. The deal could increase SSTL’s subscriber base and provide it access to spectrum in 13 circles where it did not win spectrum in the third round of spectrum auctions, and additional spectrum in the remaining nine circles. The merger would enable TTSL to source funds to pare its debt.

MTNL

Mahangar Telephone Nigam Limited’s (MTNL) operational and financial struggle continued through 2013. Hypercompetition, a dwindling subscriber base and declining ARPUs resulted in slow revenue growth for the operator.

In a positive development, MTNL narrowed its stand-alone net losses by 14 per cent from Rs 10.93 billion during the quarter ended September 2012 to Rs 9.47 billion during the corresponding quarter in 2013, after reporting growing losses for nine consecutive quarters. Lower provisions for employee retirement benefits were cited as the key reason for this achievement. However, the total income declined by 3.4 per cent from Rs 8.42 billion to Rs 8.13 billion during this period.

The operator had a mobile subscriber base of 3.57 million and a wireline subscriber base of 3.54 million as of October 2013. Its wireless subscriber base has been declining. As compared to this, MTNL’s foothold in the broadband segment is strong. As of June 2013, it ranked third in the internet and broadband space with 1.97 million subscribers (excluding internet access through mobile devices).

MTNL is working to increase the penetration of data services through fibre and 3G data cards. The operator plans to expand services based on technologies like IP-MPLS and fibre-to-the-home (FTTH) based on the gigabit passive optical network and access networks. The company has launched FTTH data services on a commercial basis and is exploring partnership opportunities with other stakeholders. It is also planning to undertake a Rs 4 billion project to enhance its 2G and 3G coverage. Under this project, about 1,500 2G BTSs and about 2,000 3G BTSs will be installed. MTNL is also upgrading its telephone exchanges across the Delhi and Mumbai circles.

To tap new revenue streams, the company is looking to leverage its existing assets through infrastructure sharing. It has started sharing its passive and active infrastructure such as towers and core capacity with private players. It is leasing out its tower sites to other operators that are looking for additional capacity. The operator is also exploring ways to develop and share its real estate as it owns vast tracts of surplus land and buildings.

Videocon Telecom

At present, Videocon Telecom offers telecom services in seven circles – Haryana, Madhya Pradesh, Gujarat, Bihar, Uttar Pradesh (East and West) and Punjab. During 2013, the company focused on expanding its network in these service areas. For instance, in the Punjab circle, it partnered with Huawei to introduce Wi-Fi services through hotspots. Over the next few months, the operator plans to extend Wi-Fi coverage to other circles as well.

The operator plans to launch 4G services across circles in early 2014. It has selected Nokia Solutions and Networks to set up long term evolution-frequency division duplex networks for offering services across its licensed circles except Punjab. The operator is also focusing on strengthening its existing infrastructure. It plans to set up 1,550 and 1,800 towers in the Madhya Pradesh and Gujarat circles respectively over the next year. In addition, the company is increasing its retail store base to 100 in the Gujarat circle. Videocon is betting on its ability to offer services at 15-20 per cent lower tariffs than its competitors.

Loop Mobile

The operator has been offering telecom services in the Mumbai circle for the past 19 years. A single circle operator, Loop is the fifth largest player in the Mumbai circle. However, its Mumbai licence will be due for renewal in November 2014 and for this, the operator is examining options to raise funds through the private equity route.

Currently, Loop Telecom holds 8 MHz of spectrum in the 900 MHz band and 2 MHz of spectrum in the 1800 MHz band. The operator has appointed a merchant banker to support the fund-raising exercise. It is also looking to raise capital to fund its participation in the upcoming auctions. Loop Mobile plans to launch 3G and 4G services if it wins a significant quantum of spectrum in the auctions.

Further, to expand its reach in the Mumbai circle, the operator increased the number of branded retail stores from 56 to 71 over the past year. Over the next few months, Loop Mobile will add another 30 branded retail stores. These stores are aimed at attracting high-end customers and reducing churn. The operator has also been focusing on enhancing its VAS offerings. It recently launched the M-Secure service, which provides post-paid customers handset and wallet protection. It also relaunched prepaid and post-paid customer loyalty programmes for its subscribers.