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Jan, 16 2010

Ring in profits

The mobile subscriber base in the country crossed the 500 million mark to touch 506 million in November. The landmark development comes for the overall telecom subscriber base of mobile plus landline in October against the targeted date of December, 2009.

The mobile subscriber base in the country crossed the 500 million mark to touch 506 million in November. The landmark development comes for the overall telecom subscriber base of mobile plus landline in October against the targeted date of December, 2009.  According to figures released by the Telecom Regulatory Authority of India (TRAI), the total telecom subscriber base stood at 543 million in November end, registering a growth of 3.34 per cent over the previous month.

With ingress of internationally recognised labels in the market, India, today, emerges as a golden goose for the telecom industry. With an objective of getting the larger subscriber base in India, telecom companies are targeting the young population by providing them with products and services at affordable tariffs to maximize their share in the market. Franchising in the mobile industry is also flourishing as it is giving a worthwhile opportunity to ambitious entrepreneurs to reach out the consumers on a pan India basis. On the growth of mobile phone market, Rajiv Agarwal, CEO, The Mobile Store says, “At present the handset market size would be estimated to be about Rs 25,000 crore with around 100 million handsets for 2009. Although 2009 saw a slowdown as compared to 2008 due to economic conditions, it is expected to grow at 10 per cent in the coming year.” With this, India emerges as the fastest growing telecom market in the world adding over 10 million users per month.

Moving beyond unorganised market

Heading beyond from their chief role of communication, cell phones, today, are also being used for internet connectivity, music, games, value added services and multimedia messages than only as a social networking gadget.

Previously, the unorganised retailers would lead the market by retailing cell phones, other accessories and recharge cards for pre-paid connections through mom and pop stores. To provide their services to customers, the telecom companies established a network of distributors and dealers who typically involved small retailers across the nation to sell their services to the customers directly. As market conditions change, a host of new brands are entering the telecom sector through exclusive and multi brand outlets (MBOs).

Today, mobile retailing is distinguished into four types:

  • handset brand store,
  • mobile operators,
  • specialised retailers and individual shop owners.

For these stores, mobile retailing is not merely restricted to selling handsets only but to potentially drive consumers to stores. The unorganised and organised players in the industry are giving access to consumers to buy mobile accessories, imaging devices, music and gaming products, after sales warranty, home calling cards, recharge vouchers, prepaid and postpaid connections and other value added services. Observing the growing cell phone purchase on day-day basis, the mobile operators and handset makers are seeking to expand into the untapped regions of the country.

So far, India’s telecom industry was dominated by unorganised companies as they sold mobile handsets and their accessories at economical rates. Talking of the current market scenario Vivek Palod, Director and Co-founder, Mobile Magic Pvt. Ltd, says, “It is a highly fragmented industry and will continue to be so as there is a deep rural penetration of telecom services in India. Organised players do not have plans to enter such markets. We at Mobile Magic see a big opportunity in such markets and would take to the franchising route.” Seeing the strong presence in urban areas, companies are keener in penetrating rural areas and providing services to there.

While expressing his views, Mobizone, MD, says “Except for the manufacturers or the original equipment manufacturer (OEM) suppliers, the repair of the telecommunication equipment is totally left to the unorganised sector. There is no guarantee of genuine spares, or service, and there is a risk of ‘forced swap’ when the equipment is handled by repairers in the unorganised sector. Hence, there is a great need for entrants from the organised sector to take this call as there is a great niche market waiting to be tapped.”  With diffusion of new brands in the country, the mobile industry is dynamically changing with unorganised players continuing to feel the crunch from organised companies. Talking of the changing market scenario, Agarwal, observes, “Over the last 10 years or so, the Indian telecom market has matured significantly. India has emerged as the fastest growing telecom market with the highest number of subscriber addition each month worldwide.” According to Vivek Bali, Vice President, Spice Retail, there are more than two million telecom outlets of various sizes and product offerings versus 5,000 in the organised telecom retail sector.

Fuelling telecom growth through franchising

Gone are the days when the state-run companies like, BSNL and MTNL, dominated the telecom industry in India. The industry picked up growth with the increasing penetration of organised private labels into the country. Unsurprisingly, franchising in mobile handset market is bestowing enormous opportunity to the starters.

Telecom service providers such as Reliance Mobile, Spice Hotspot, Vodafone, Airtel, Aircel, BSNL, MTNL, Uninor, an Indian venture of Telenor Group, Tata Indicom, Mobile Magic, are some of the organised brands that are charting out their base in India through franchising. Mobile retailers such as Nokia, LG and Sony Ericcson Virgin Mobile, Samsung, LG, Loop Mobile, Hoop, Mobizone, Mobicare, Hash 10 are other mobile operators that have extensive franchise plans to expand in every nook and cranny of India. Explaining as to how franchising is shaping up in the telecom sector, Sarup Chowdhary, CEO, Reliance World says, “Franchising in the telecom sector kicked off with the start of the telecom revolution in India. It started with COFO (Company Owned Franchisee Operated) and FOFO (Franchisee Owned Franchisee Operated) models. The last few years have witnessed a sharp increase in the MBO (Multi Brand Outlet) franchising model offering both, mobile services and devices.” He adds, “Though currently, the organised retail in the telecom sector remains a miniscule part, it will definitely benefit from this boom. Consumers are also favouring the quality of products and services being offered from organised retailing. Riding on this, the franchising model has shaped up well and is poised for a good growth in the near future.”

In addition to reaching untapped regions, companies are all set to franchise. On a positive note, Bali, elucidates, “An increase in dispensable income and purchasing power of the Indian customer has led him to be more brand conscious. Given this emerging trend in customer behaviour, it is imperative for retailers to maximise scale and reach. However, ridden with issues of limited bandwidth and resources, retail organisations have explored the franchise route as a means to cater to their farthest audience, a growth path if well executed met with unprecedented success, for both franchisor and franchisee.”  Accepting his viewpoint, Palod, believes, “There is a huge opportunity in telecom franchising in India. After the slowdown of 08-09, we see a bright chance of revival in 2010. We see ourselves to be a strong player in tier III-IV cities in India.” In addition, he adds, “We have a master franchise (MF) model, where our MF plays an important role in setting up the franchisees in tier III and IV cities. We offer them brand recognition, legal content and host of other benefits.”

Stressing his viewpoint, Mobizone, MD says, “The franchise model gives you benefit of network much quickly. Today, every organisation has to work on this model since it makes more economic sense and offers the opportunity to the parent company to keep exploring new avenues and areas of business opportunities.”

While, pointing out the franchising opportunity in the telecom industry, Bali conveys, “The endeavour is to ensure that our franchisees benefit from the procurement and other operational efficiencies that come our way by sheer economies of scale. We extend all requisite support to our associates including standardised product portfolio, equitable brand presence, universally prevalent promotions, network and logistics, training and service support. A franchise is just an ownership model; for our customers there will always be a standardised experience across all touch-points of the brand.”

At present, all the stores of The Mobile Store are company-owned and company run. On sharing his plans to start the franchise operations in the country, Agarwal says, “We are currently evaluating the franchise route from a feasibility point of view.”

Competing to be in place

Increasing brand awareness and altering buying habits of consumers have led to the appearance of organised specialty retail chains selling mobile handsets at diverse price points. To give stiff competition to the fragmented market, the telecom phone market is buzzing with the entry of specialty mobile retail chains in different retail formats at high footfall areas such as high streets and shopping malls. Talking about his strategy, Chowdhary says, “Very recently, Reliance World has adopted a push-market strategy for gaining access and expanding the market.”

Whereas, on expanding their presence, Palod believes, “We prefer to be in virgin markets where there is least competition. As it is a low margin business it is better run by franchisees than through a company-owned format.” On the other hand, Agarwal adds, “Our key strategy is to continue to be a neighbourhood store for the Indian consumers and we are extremely focused on rolling out stores in location and cities where consumers want us to be present. In order to derive footfalls on a continuous basis we offer unique schemes.”

Building innovative marketing tactics

To target the customers effectively, mobile phone companies such as Nokia and Sony Ericsson are coming up with exclusive ‘concept stores’ which offer a total brand experience through live displays by skilled workforce who will showcase the entire range of handsets allowing customers to experience touch and feel of the product through redefined retail experience. Taking into account the chaotic shopping experience in India, the telecom companies have started reducing prices of their products and services to bring the consumers to stores. Some of these are:

  • Value-Added Services: Currently, mobile value-added services (MVAS) in India accounts for 10 per cent of the operator's revenue, which is expected to touch 18 per cent by 2010. According to a study by Stanford University and consulting firm BDA, the Indian MVAS is poised to touch $ 2.74 billion by 2010.

Despite selling mobile phones of different labels, the mobile handset companies have now started stocking up i-pods, mp3, pen-drives, and mobile accessories including Bluetooth, earphones, memory cards, chargers, pouches and rechargeable coupons as well. With increasing competition in the telecom sector, companies are focusing on introducing new value added services (VAS) to their subscribers which includes,– SMS-based services, downloading ring tones, games, internet accessibility, caller tunes, music, daily news, infotainment, stock market reviews, international roaming and astrology services, just to name a few.

  • After-sales service: Offering an after-sales service to the consumer plays an important role in the telecom industry. To cater to this huge demand, companies such as Nokia, The Mobile Store and Mobizone are the leading refurbishing and repair service providers to all leading telecommunication companies for every range of their products. For instance, Mobizone has ultra-modern level four service centres in Noida, Mumbai, Kolkata and Chennai to serve the consumers. The Mobile Store provides its repair services through a very highly skilled after sales service team present across the country.
  • Sourcing & manufacturing products: For sourcing various mobile handsets and other accessories, the companies have tie-ups with vendors in India and other international markets. For instance, Mobizone sources its products from countries in Asia and Far East, its principle sourcing has been from world renowned manufacturing companies in China. Mobizone head, emphasizes, “The products undergo rigorous quality control tests, and only then are approved for sale. Many of our products, spares are backed by replacement warranty.” On the other hand, Agarwal adds, “We are in direct contact with various leading brands and source their products either directly or through their national distributors.” Apart from mobile handset manufacturers such as Nokia, Samsung and LG, India’s Micromax is also planning to invest Rs 100 crore next year to start the mobile handset production at its plant in Himachal Pradesh.
  • Merchandise in style: VM is all about communicating the brand to the customers. To increase the footfalls in stores, the store walk-ins must be lively and vibrant enough to catch the glimpse of the customer on the go. On this Bali, believes, “Visual merchandising serves as the silent salesman - promoting, highlighting and educating the customer thus facilitating an engaging shopping experience.” The company consistently works towards refreshing and enlivening the visual appeal of its outlets through innovative design and application.
  • New brands: The new entrants in the telecom industry include Telenor Group’s Indian venture Uninor, Aircel and Bahrain based Stel which recently formed a Joint venture with Chennai based Siva Group to launch mobile services in India. Other brands like Lemon mobile, Airphone, Lava mobiles, Onida mobiles and Karbonn mobiles and Taiwan based BenQ, the largest mobile phone manufacturer also made its entry into highly competitive telecom sector. 

The growth continues

In an attempt to increase the footprint, companies have begun franchise operations to reach the consumers effectively. Currently, Spice Retail has over 683 stores across the country which is a combination of company-owned and franchise outlets. To extend company’s operations beyond, Bali enlightens, “We are currently experimenting with a couple of different models in different regions which should increase our retail footprint to about 2000 by the year end of 2010.” He adds, “A strong presence across the Mobile eco-system (Handsets, Mobile VAS, Mobile & Technology retail, BPO) makes it an excellent opportunity to be a part of this ever growing market.”

At present, The Mobile Store has about 1,300 stores. On the other hand, Agarwal says, “We are planning approximately 2,00 stores by 2010. We are targeting to increase our reach in the existing 200 cities that we are present in as well as extend our coverage in the attractive tier II and III cities where high growth is seen in the telecom industry.”  On the other hand, Mobizone has five company-owned and 75 franchise stores in India. Mobizone head adds, “In 2010, the company plans to have 30 company-owned and 180 franchised outlets. To open a Mobizone outlet, a franchisee would require a capital investment of Rs 60,000 to 70,000 within a space of 150-200 sq.ft.”

With the increasing subscriber base and emergence of specialty retailers in the telecom industry, the market of mobile handsets is anticipating a double digit growth in the years to come. As the market saturates, the companies are leveraging on adding more value-added services to their portfolio to reach consumers in urban as well rural areas.

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