Virgin Mobile
Content
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Ringing Youngsters – Virgin’s Distinctive Market Segmentation in
India
“Virgin Mobile’s strategy is different. We want to deliver a more tailored, more relevant offering for a single,
distinct segment. We are not pursuing scale for scale’s sake.” 1
“In true Virgin tradition, Virgin Mobile brings to all its customers ten firsts to the Indian telecoms market we’re even going to pay our customers to talk. Now that really is ‘Think Hatke!’.” 2
The year 2008 saw Richard Branson (Branson), the flamboyant founder of Virgin group entering the
competitive Indian telecom market with his Virgin mobile. The arena already had top icons in the fray –
Kumar Mangalam Birla (Idea cellular), Ratan Tata (Tata Tele Services Ltd. (TTSL)), Anil Ambani (Reliance
infocomm), Sunil Bharti Mittal (Bharthi Airtel), Kuldeep Goyal (Bharath Sanchar Nigam Ltd. (BSNL)), Arun
Sarin (Vodafone) and Chandras (Unitech). Branson, famous for his innovative ideas and maverick business
decisions made the inaugural function of Virgin mobile in India memorable with a skywalk well reported by a
delighted media. Indian telecom market is said to have been warily watching Branson’s move in India while
Virgin mobile has been keenly monitoring the telecom market and identifying the ‘youth’ segment. Branson
decided to invest about $100 million on this segment and in March 2008 entered into a franchisee
agreement with Tata Tele services. 3 This is said to be its largest investment in India till date. 4 The TataVirgin deal has fired the first salvo in the micro segmentation of customers. Experts opine that micro
segmentation is essential for a late entrant in the highly competitive telecom market. “This will gain
momentum and others will follow” says Aravind Subramanian, partner and director, Boston Consulting
Group. 5 Would planned market segmentation strategy and colourful packages provided by the service
provider attract the youth and give the new entrant a fair market share to survive in the running waters of
telecomm? How will Virgin make its presence significant in Indian telecomm which has the world’s lowest
call rates and the fastest growth in subscriber base? 6
1 “Virgin Mobile enters Indian Telecom Market with much Flamboyance”, http://www.techshout.com/mobilephones/2008/03/virgin-mobile-enters-indian-telecom-market-with-flamboyance/, March 3rd 2008
2 “SIR RICHARD BRANSON LAUNCHES VIRGIN MOBILE BRAND”,
http://www.virginmobile.in/downloads/Press_Release.pdf
3 “Branson: Gimmick or 21st century master strategist?”,
http://news.moneycontrol.com/india/news/business/bransongimmick-or-21st-century-master-strategist-/18/00/329278,
March 7th 2008
4 “Virgin Mobile enters India through pact with Tata Tele”, http://www.tata.com/tata_teleservices/media/20080303.htm,
March 3rd 2008
5 Prasad Anurag, “Virgin Territory”,
http://www.outlookbusiness.com/inner.aspx?articleid=1121&subcatgid=576&editionid=33&catgid=29
6 “In global telephony, India has many ‘firsts’ to showcase”, http://www.financialexpress.com/news/In-global-telephony,India-has-many-‘firsts’-to-showcase/200201/, May 26th 2007
This Case was written by Saigeetha, Lekha Ravi and Syed Abdul Samad, IBS Research Center. It is intended to be used as
the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.
The case was compiled from published sources.
©2009, IBS Research Center.
No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium
whatsoever without the permission of the copyright owner.
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– Sir Richard Branson, Chairman and Founder, Virgin Group.
509-109-1
Indian Telecom Scenario
The rapid rise of mobile users in India had inevitably caught the eye of the private players. Many players
vied with one another to enter the Indian cellular market which adds more than 6 million users every
month 11 to its account (Exhibit I). Indian cellular services, based on technology, can be further divided into
two categories: Global System for Mobile Communications (GSM) and Code Division Multiple Access
(CDMA).
Players like Bharthi Airtel 12 , Vodafone 13 , and Idea Cellular 14 dominate the GSM sector while the CDMA
sector is dominated by Reliance communications 15 and Tata Indicom 16 . Indian mobile telephony market has
witnessed a number of major takeovers and mergers, resulting in significant shifts in market share among
the players. Initially there were only three major private players – Hutchison Telecom (subsequently
acquired by Vodafone), Bharti Airtel, and Idea Cellular. The entry of the state-owned enterprises – BSNL
and MTNL – as mobile operators added to the competition. GSM is more popular than CDMA in India as
GSM provides users the facility to change SIM card at any time and international roaming is much easier for
the former as it has wider coverage. The CDMA based services in India became popular in 2002-2003. 17
Reliance telecom is the leading CDMA operator in India which has emerged as a major challenger to the
GSM operators in India. Reliance also announced plans to launch GSM services in 2007 to gain an
advantage over its existing CDMA infrastructure and to increase its reach in the market. While Reliance’s
7 Bharat Sanchar Nigam Ltd. formed in October, 2000 by Government of India, is world's 7th largest Telecommunications
Company providing comprehensive range of telecom services in India. Its services include Wireline, CDMA mobile, GSM
Mobile, Internet, Broadband, Carrier service, MPLS-VPN, VSAT, VoIP services, IN Services etc.
8 Mahanagar Telephone Nigam Limited was set up on 1st April, 1986 by the Government of India to upgrade the quality of
telecom services, expand the telecom network, introduce new services and to raise revenue for telecom development
needs of India’s key metros.
9 “Telecom Industry in India”, http://www.iloveindia.com/economy-of-india/telecom-industry.html
10 “Fixed service providers”, http://www.iimahd.ernet.in/ctps/basic.htm
11 “UPDATE 1-Vodafone to add 1.5 mln customers/mth at India unit”,
http://in.reuters.com/article/companyNews/idINBOM12314220070615, June 15th 2007
12 Bharti Airtel Limited is India’s largest integrated and the first private telecom services provider with a footprint in 23
telecom circles in India(Source: http://www.airtel.in/wps/wcm/connect/airtel.in/airtel.in/Home )
13 Vodafone Essar is a subsidiary of Vodafone Group Plc and commenced operations in 1994 in India when its predecessor
Hutchison Telecom acquired the cellular license for Mumbai. Vodafone Essar now has operations in 16 circles covering
86% of India's mobile customer base, with over 49.1 million customers. (Source: http://www.vodafone.in/pages/index.aspx)
14 IDEA Cellular is owned by Indian business baron ‘Kumaramangalam Birla’ and has operations in Delhi, Maharashtra,
Goa, Gujarat, Andhra Pradesh, Madhya Pradesh, Chattisgarh, Uttaranchal, Haryana, UP-West, Himachal Pradesh and
Kerala. It has a customer base of over 17 million(Source: http://www.ideacellular.com/IDEA.portal)
15 Reliance communication owned by Indian business tycoon Anil Ambani encompasses a complete range of telecom
services covering mobile and fixed line telephony. It includes broadband, national and international long distance services
and data services along with an exhaustive range of value-added services and applications.(Source:
http://www.rcom.co.in/webapp/Communications/rcom/index.jsp)
16 Tata Comm. is India's leading international telecom service provider. It is part of the Tata Group And is a leader in
wireless USB Modem, Wireless Laptop Internet Card and CDMA Mobile Phones. It started as a successor to the erstwhile
Overseas Communication Services, and went on to become the premier provider of international voice and data services.
(Source: http://www.tataindicom.com/)
17 Pandey shankar Ravi, “CDMA MOBILE PHONES: A Chicken-egg Situation”,
http://voicendata.ciol.com/content/vNd100/2003/103062408.asp, June 24th 2003
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India being the second-most populous country in the world is considered as an emerging market by telecom
players across the globe. Telecommunication sector in India is traced way back from 1851 (Annexure I).
The telecommunication sector in India is divided into two segments: Fixed Service Provider (FSPs), and
Cellular Services. Fixed line services consist of basic services, national or domestic long distance and
international long distance services. The Government operators (BSNL 7 and MTNL 8 ) account for almost
90% of the revenues from basic services. 9 Private sector services are available only in selective urban
areas, and collectively account for less than 5% of subscriptions. 10 However, private services focus on the
business/corporate sector, and offer reliable, high-end services, such as leased lines, Integrated Services
Digital Network (ISDN), Closed user group (CUG) and videoconferencing.
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decision upset its GSM competitors with the fact that Reliance would be enjoying twice the opportunity to
target subscribers, it was not the only operator in India to pursue a dual-technology strategy. Reliance
received GSM spectrum for 14 new circles in 2008. 18 BNSL also went on to launch CDMA2000 1x EV -DO
services in selected cities. This helped to take advantage of the demand for high-speed mobile data 19
among business users.
Group Company
Airtel(GSM)
Reliance (CDMA + GSM)
Vodafone Essar(GSM)
BSNL(GSM)
IDEA(GSM)
Tata (CDMA)
Aircel(GSM)
Spice(GSM)
MTNL(GSM + WLL 20 )
BPL(GSM)
HFCL (CDMA)
Shyam (CDMA)
Total (All India)
Total Subscribers
66825935
48696295
47466853
36997418
26140643
25476062
11491986
4497675
3350437
1331261
326150
108396
272709111
Source: “Group Company wise market share”, http://www.india-cellular.com/MarketShare.html
Cellular operators get ample revenue from international and domestic long distance telephony services.
The reduction in tariffs for airtime, national long distance, international long distance, and handset prices
has increased the demand subsequently. The mobile phone subscriber base in India skyrocketed to more
than 149 million at the end of December 2006 showing a substantial growth of nearly 100% from about 75
million subscribers in December 2005 21 (Annexure II). The sector recorded the growth by an average rate
18
Kurup S Rajesh, “DoT, Trai differ over rollout obligation for dual-tech firms”, http://www.businessstandard.com/common/news_article.php?leftnm=10&bKeyFlag=BO&autono=323630, May 21st 2008
19 High speed data is the internet connectivity services provided by the telecom operators.
20 Wireless Local Loop.
21 Shrapnel Bis, “India Telecom Report 2007”,
http://www.strategyanalytics.com/default.aspx?mod=ReportAbstractViewer&a0=3378, April 19th 2007
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Exhibit I
Major Telecom Players and Their Market Shares
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of 92.6% in the last five years to reach 75.9 million subscribers at the end of 2005, of which 77.7% were
GSM subscribers and remaining CDMA customers. 22 This growth trend is continuing in full force, with the
number of mobile customers increasing by 18.7% in the first three months of 2006 to reach 90.1 million. 23
Back in 1948, India’s teledensity 24 was only 0.02% which grew to 1.94% in 1998. 25 The New Telecom
Policy of 1999 liberalised the Indian telecoms market and triggered the penetration level which reached to
7.17% in 2003, 9.2% in 2004 26 and 11.43% in 2006 and is expected to reach 18% 27 by March 2009
(Exhibit II). The increase in teledensity showed a positive sign for the entry of foreign players like Virgin
mobile into India.
Exhibit II
Tele-density
Tele density(%)
20
18
15
11.43
10
9.2
7.17
Tele density(%)
5
0
0.02
1948
1.94
1998
2003
2004
2006
2009
Year
Compiled by the authors from various sources
In an attempt to prevent many foreign players entering the sector, Telecommunication Regulatory Authority
of India (TRAI) 31 has added an array of anti-hoarding conditions to the licenses, including locking them for a
period to prevent early re-sale, and retaining fairly ambitious roll-out requirements both to deter carpetbaggers and to stimulate rural roll-out (Exhibit III).
22
Paradis Isabelle, “India's telecom growth is fulfilling its promises”, http://www.hottelecoms.com/cp-articleoctober2006.htm, October 2006
23 Ibid.
24 The number of telephones in use for every 100 individuals living within an area. A teledensity greater than 100 means
there are more telephones than people.
25 Patel Ricken, “Prospects for e-Advocacy in the Global South”, http://groups.dowire.org/groups/research/files/f/134112007-03-21T170331Z/Prospects%20for%20e-Advocacy%20in%20the%20Global%20South_Jan_07.pdf, January 2007
26 Ibid.
27 “India’s teledensity to touch 18% by '09”
http://us.rediff.com/money/2004/dec/28tele.htm, December 28th 2004
28 “India’s telecom growth is fulfilling its promises”, op.cit.
29 Ibid.
30 Ibid.
31 The Telecommunications Regulatory Authority of India or TRAI (established 1997) is the independent regulator
established by the Government of India to regulate the telecommunications business in India.
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Broadband development, one of the major services of telecom players is in its infancy in India. At the end of
2004, the country only had 135,000 broadband customers; however this number had grown by 568.9% in
2005 to reach 903,000. 28 In the first quarter of 2006 alone, the number of broadband customers increased
by 49.3% to reach 1.3 million. 29 For the new player – Virgin, there could not have been a better time to
stage an entry. With over 1 billion inhabitants and a telecom market brimming with competition, India is
today (2008) one of the world’s most dynamic and promising telecom markets, surpassing China in terms of
market vitality. 30
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Exhibit III
Key Issues for Foreign Cellular Players
Source: Shrapnel Bis, “India Telecom Report 2007”,
http://www.strategyanalytics.com/default.aspx?mod=ReportAbstractViewer&a0=3378,
April 19th 2007
The growth drivers of telecom market have been so intense that the penetration rates in metros are
reaching near-saturation. Amongst Indian metros, Chennai has been rated to have 80% mobile penetration
while Mumbai and Delhi are at around 70%. 32 With government offering tax breaks to attract companies to
build cell phone towers in remote places, mobile marketing has shifted its focus from urban to rural India. All
Cell phone companies came up with attractive packages to rural customers. BSNL is planning to relaunch
its failed Grameen Sanchar Sewak scheme (GSS) in which the postman in rural areas carry mobile phones
to rural residents in places without landlines so that they can make calls. The postmen are rewarded with a
20% commission on the calls made and 5% is given to the Department of Post. 33 Private players are also
thinking along these lines for gaining penetration into rural markets.
Airtel, which is the largest 34 private mobile service provider in India focuses on strengthening its brand
image and enters into a tie up with shop owners in the remotest parts of the country. Airtel also focuses on
passing information on crop weather, yields, fertilizers, etc. over mobile phones to the rural masses. Tata
Tele services albeit a slow-mover in the market is successfully targeting rural markets using Tata Group
distribution. It uses the distributors of Tata chemicals to hawk the telecom service to the customers who are
loyal to the brand. Amidst this tug of war happening in the telecom industry, Richard Branson’s Virgin
Telecom entered the Indian stage with its unique strategies. Virgin came into the Indian telecom market
partnering with Tata Tele services (TTSL) as a franchisee.
Virgin Mobile’s Foray into India – Target ‘youngistan’
Virgin Mobile belonging to the UK-based Virgin group entered the Indian market to specifically tap the youth
segment. The Virgin-TTSL tie- up also offers the first organised second-hand handset market in India. The
company has done an extensive research on the customer usage in the rural market as it was a largely
potential one and discovered that rural market demands simple phones with voice and text features.
Branson plans to bring the second-hand phones to meet the bill. Virgin estimates that there are 500 million
phones lying dead in the drawers in US. 35
32
Rajendran M, “The Great War”, http://www.businessworld.in/index.php/Telecom/The-Great-War.html, February 15th 2008
Ibid.
34 Chaterjee Surojit, “Bharti Airtel among top telecom companies in the world with 50 million wireless subscribers”,
http://in.ibtimes.com/articles/20071117/bharti-airtel-sunil-mittal-telecommunications-mobile-phone-wireless-vodafonereliance.htm, November 17th 2007
35 “The Great War”, op.cit.
33
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¾ Rural coverage is the key issue facing Indian tele companies at present, as urban
growth slows. Operators need to balance the high costs of roll-out to village areas
against the likely low returns. Village phones are also an option for mobile operators
to consider.
¾ Dual-technology roll-out is likely to be an important issue for some time to come,
with operators maintaining twin CDMA and GSM networks. However, it is expected
that in the long run, most operators will drift back to GSM-based solutions
¾ Spectrum allocation is a major issue In the Indian market, and it is hoped that the
imminent spectrum distribution will ensure that the bulk of the available spectrum
goes to the operators who will use it directly, rather than hoarding or re-selling it.
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Anil Sardana, managing director of TTSL countered these complaints stating, “This is not an MVNO
agreement between Virgin and Tata Tele services. There is no airtime contract between us. Virgin Mobile is
just another brand that the company would offer. It is us who will invest in infrastructure and get regulatory
approvals and operate as a network service provider. Virgin, on its part, would just lend its brand and the
value-added services (VAS) that come with it to us.” 40 TRAI gave a clean chit to the agreement after a
thorough investigation and enquiry. According to a TRAI official, “All the companies explained their position
to us and gave us the requisite information we needed. As a regulator, we were also able to understand
how these agreements worked. After hearing out the companies and examining the information they
submitted, we have found that they are not in any violation and government's revenues are not impacted.” 41
According to Agence France-Presse (AFP) 42 , the venture differentiates itself from their competitors by
offering “more tailored and relevant” music, entertainment, news, sports and Bollywood contributions to
youth. According to MA Madhusudan, chief executive officer, Virgin Mobile India, “Our research shows that
youth have a high propensity to consume mobile services and are looking for a solution that gives them the
flexibility to talk to their peers at rates that are pocket friendly.” 43
With a “Think Hatke” 44 philosophy, Virgin aims at youth and offers a wide range of new plans. Virgin Mobile
India plans to quickly attract several million customers and thus is focused more on their distribution
strategy. According to P Madhavan, chief sales and distribution officer, Virgin Mobile India on their retail and
distribution strategy, “Our retail strategy has been built around a focused model that gives efficiencies to
cater to a large segment of our target market. Our research shows that youth love to shop and for them
ambience, choice and service experience play a critical role in influencing their buying decision. Bearing this
in mind, we have tied up with a host of modern retail outlets including Big C, Sangeetha, The Mobile Store
and Univercell in the state to retail our products.” 45 Virgin Mobile has been taking a number of initiatives to
36 Troaca Florin, “Virgin Mobile Brings India its First National Mobile Service for Young People - In collaboration with Tata
Teleservices”, http://news.softpedia.com/news/Virgin-Mobile-Brings-India-its-First-National-Mobile-Service-for-YoungPeople-80115.shtml
37 A MVNO is a mobile operator that neither owns spectrum nor has its own network infrastructure. Instead, it buys airtime
from cellular operators in bulk and resells it under its own branding.
38“ Mobile virtual network operators not viable in India: Mittal”, http://www.thaindian.com/newsportal/business/mobilevirtual-network-operators-not-viable-in-india-mittal_10035440.html, April 7th 2008
39 Ibid.
40 “Virgin Mobile enters India, but not as MVNO”,
http://economictimes.indiatimes.com/News/News_By_Industry/Telecom/Virgin_Mobile_enters_India_but_not_as_MVNO/art
icleshow/2832231.cms, March 3rd 2008
41Philip Thomas Joji, “Tata Tele-Virgin deal gets TRAI clean chit”,
http://economictimes.indiatimes.com/News/News_By_Industry/Telecom/Tata_TeleVirgin_deal_gets_TRAI_clean_chit/articleshow/3131834.cms, June 16th 2008
42 Agence France-Presse (AFP) is the oldest news agency in the world, and one of the three largest with Associated Press
and Reuters.
43 Ibid.
44 “Think differently”- Advertisement caption of Virgin mobile in India.
45 “Virgin Mobile eyes larger chunk of youth market”, http://www.dnaindia.com/report.asp?newsid=1176780&pageid=2,
July 10th 2008
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Virgin Mobile India is said to be the country’s first national mobile service that focuses only on teenagers
and young users. 36 Usually Virgin enters as a Mobile Virtual Network Operator (MVNO) 37 wherever it enters
into operations. India doesn’t permit MVNOs. As Virgin Mobile India does not have a network of its own; it
operates by collaborating with TTSL in India. There was controversy during its initial launch in India when
industry experts opined that an operation of Virgin with TTSL was akin to an MVNO. “I don’t think MVNOs
can succeed at the current rates,” 38 Mittal, Bharti Group chairman and managing director commented at a
conference held by the Confederation of Indian Industry (CII). Other operators opined this as a “backdoor
entry”, and urged the government to clarify on the partnership as it was on the lines of a MVNO. 39 The
Cellular Operators Association of India shot off a letter to the Department of Telecom (DoT) seeking clarity
on whether or not MVNOs are allowed in India (Exhibit IV).
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attract the youth segment to adopt its services. This includes attractive and sleek handsets and many
innovative offers. They were the pioneers to offer credit for incoming calls (Exhibit V).
Exhibit IV
Excerpt of the COAI (Cellular Operators Association of India) Letter
“As far as we are aware, the present telecom policy does not either permit MVNO or the
reselling of airtime. In light of the above, we would appreciate if you could inform us whether
and when the policy has been amended to allow for introduction of MVNOs,” the COAI letter
said. 46
“It may be appreciated that if the company is acting/ operating as a franchisee of Tata Tele
services, then its services can be retailed only under the Tata Indicom brand. It is evident
from the launch presentation that this is not the case. We would deeply appreciate if you
could kindly look into this matter and clarify as to in what capacity Virgin Mobile is entering
the Indian market and the terms and conditions thereof.”
Compiled by the authors from: (a)
http://www.thehindubusinessline.com/2008/02/29/stories/2008022952511200.htm
(b) http://www.thehindubusinessline.com/2007/11/20/stories/2007112052910100.htm
Virgin mobile did a thorough customer survey and found out the niche market they have to aim at. “There
are more than 215 million Indians aged between 14 -25 years. Over the next three years, we expect this
segment to be adding over 50 million new youth subscribers and to have mobile service revenues of over
350 billion dollars. By focusing exclusively on a single segment and by continuing to deliver innovative
services that cater to this segment’s distinct needs, we believe Virgin Mobile can capture more than 10
percent of this incremental market within 3 years of launch,” said Jamie Heywood, deputy CEO, Virgin
Mobile India. 47 “At Virgin Mobile we believe that the existing operators are all pursuing the same strategy: to
get as many subscribers as quickly as possible,” 48 added Branson.
However, he considers the deal with TTSL as the best option available as India has a closed policy
regarding foreign players. He comments, “India is very close to when it comes to foreigners competing
within your marketplace. If you want to set up a domestic airline in India, it’s impossible. If you want to move
into financial services in India it is near on impossible. If you want to set up a mobile phone MVNO it’s
impossible. We are very pleased that we have managed to do an agreement with Tata because Tata has
got a great network in India. It is a network we can actually get through when you make a call, which with
most of the other networks you can’t. We have got a great brand particularly for the younger market in India.
So, doing a sort of branding cum knowledge-based deal rather than MVNO has been a compromise. But at
least we are up and running and Virgin Mobile is available from today in India, and Indians will appreciate
the service that we are going to offer them.” 49
46
“Virgin’s entry into India telecom space near certain”,
http://www.thehindubusinessline.com/2008/02/29/stories/2008022952511200.htm, February 29th 2008
47 “Tata Teleservices launches Virgin Mobile branded services to India’s youth”,
http://www.virginmobile.in/downloads/Press_Release.pdf, March 2nd 2008
48 Ibid.
49 “Branson: Gimmick or 21st century master strategist?”, op.cit.
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“On going through the presentation (made during the launch), it may be noted that there is
absolutely no mention of Tata Tele services or the Tata Indicom brand in the entire
presentation nor is there any information as to the capacity in which Virgin Mobile is entering
the Indian mobile market.
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¾ Get paid to receive calls: Virgin Mobile customers will get 10 paise credit for every incoming minute they receive from any network
¾ Easy Handset upgrades: Virgin Mobile is India’s first CDMA service where all customers
will be on RUIM (SIM)-based phones, thereby giving them the convenience of upgrading
their phones without having to change their number or re-enter their address book
¾ True Care: All Virgin Mobile customers will be called back by the same call center agent to
address their query
¾ Call more for less: After the 1st 2 mins of calls each day (which will be charged at INR 1)
all Virgin Mobile customers nationwide will automatically be able to call any local network at
any time of day for only 50 paise per minute with no commitment or extra charge
¾ One Touch access to V-Bytes: 100% of Virgin Mobile-branded handsets will have a
simple one-touch access button that takes customers directly to our unique VBytes portal
¾ Safe Secrets: All Virgin Mobile RUIM (SIM) cards will have a secret folder where SMSs
can be stored and password-locked to keep them safe from prying eyes
¾ ‘100% colour, 100% FM’ handsets: Virgin Mobile is the only CDMA mobile service brand
to offer its customers a handset range that is both 100% colour and 100% FM-radio
enabled
¾ 100% Bling: Virgin Mobile offers India’s first mirror finished clam shell phone with dual
screens for less than INR 2500
¾ Unlimited access to V-Bytes for a simple daily charge: Virgin Mobile customers can
enjoy unlimited access to our unique. VBytes data portal, including free Virgin selected
content, for a simple daily charge of only INR 5
¾ TGI weekend Bolt-on: Virgin Mobile customers can enjoy a weekend of extreme calling
and texting by paying only INR 18 to get 100 local SMS and all local mobile calls at 30
paise from Friday to Sunday.
Source: “Tata Teleservices launches Virgin Mobile branded services to India’s youth”,
http://www.virginmobile.in/downloads/Press_Release.pdf,March 2nd 2008
With a market share of less than 10% 50 , (Exhibit VI) the deal could help Tata to get the market push it
needs. Tata was successful in carrying out the proposal and convincingly brought in Virgin. Tata managing
only a sixth place amongst telecom majors in India saw the opportunity to capture further market share.
“We are very excited about our association with the Virgin Group. Their service innovation and strong brand
resonance with the youth segment will allow Tata Teleservices to offer a truly world-class service
experience to our youth subscribers. This association also supports our efforts to be the fastest growing
mobile network in India,” declared Anil Sardana, managing director of Tata Teleservices. 51 Under the terms
of deal, Tata will be paying Virgin a royalty for the use of its brand and a share, per subscriber, of its future
revenue whereas Virgin is expected to license the Virgin Mobile brand and technology expertise in the area
of value-added services (VAS) which includes video calling, where the user can see the person he/she
talking to, video clips of celebrity interviews, film snippets, comedy clips, games, and a wide coverage on
news and sports and handsets to TTSL. This also provides TTSL a competitive edge in using Virgin's core
expertise in marketing and service innovation to create offerings mainly targeted at the youth segment.
50
Prasad Anurag, “Virgin Territory”
http://www.outlookbusiness.com/inner.aspx?articleid=1121&subcatgid=576&editionid=33&catgid=29
51 “Tata Teleservices launches Virgin Mobile branded services to India’s youth”, op.cit.
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Exhibit V
VIRGIN MOBILE FIRSTS
509-109-1
Source: Prasad Anurag, “Virgin Territory”
http://www.outlookbusiness.com/inner.aspx?articleid=1121&subcatgid=576&editionid=33&catgid=29
According to Madhusudhan Gupta, a senior Research Analyst at Gartner, “It’s a win-win situation for both
the sides, especially when CDMA has not done that well.” 52 Researches made by experts say that India is
home to 215 million people in the 14-25 age group and the urban youth mobile users is expected to
increase 50 million between 2008–2010. 53 According to telecom analysts, high-net-worth customers unlikely
shift operators for a new brand. Virgin mobile would thus be left with only low-paying and cost conscious
users as the target group.
Can Virgin mobile compete on these terms and move up the average revenue per user (ARPU) chain?
“The cost and financial implications of sharing a network can be huge. The time-frame for a decent return
on investment may also be small, and profits may also get affected,” says Gartner’s Gupta. 54 “The brand
hype will die after sometime, and then it will all boil down to quality of service, pricing and product
suitability,” says an analyst who tracks telecom companies. 55 Other players view Virgin’s entry as a
backdoor-entry. While commenting on his entry to India, Branson opines, “If you can’t make it in India, You
won’t make it anywhere.” 56 Will the appealing foreign brand name, Indianised network, segmented market
and huge investment optimise Virgin’s profits and position?
52
“Virgin Territory”, op.cit.
Ibid.
54 Ibid.
55 Ibid.
56 Kripalani Manjeet, “Virgin’s big move”,
http://www.businessweek.com/globalbiz/blog/eyeonasia/archives/2008/03/virgins_big_ind.html, March 2nd 2008
53
9
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Exhibit VI
Tata Tele Services- Makes the Call
509-109-1
Annexure I
History of Indian Telecommunications
The first wind of reforms in telecommunications sector began to flow in 1980s when the private
sector was allowed in telecommunications equipment manufacturing. In 1985, Department of
Telecommunications (DOT) was established. It was an exclusive provider of domestic and longdistance service that would be its own regulator (separate from the postal system). In 1986, two
wholly government-owned companies were created: the Videsh Sanchar Nigam Limited (VSNL) for
international telecommunications and Mahanagar Telephone Nigam Limited (MTNL) for service in
metropolitan areas.
In 1990s, telecommunications sector benefited from the general opening up of the economy. Also,
examples of telecom revolution in many other countries, which resulted in better quality of service
and lower tariffs, led Indian policy makers to initiate a change process finally resulting in opening up
of telecom services sector for the private sector. National Telecom Policy (NTP) 1994 was the first
attempt to give a comprehensive roadmap for the Indian telecommunications sector. In 1997,
Telecom Regulatory Authority of India (TRAI) was created. TRAI was formed to act as a regulator to
facilitate the growth of the telecom sector. New National Telecom Policy was adopted in 1999 and
cellular services were also launched in the same year.
Source: “Indian telecom industry”, http://www.iloveindia.com/economy-of-india/telecom-industry.html
10
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Indian Telecommunications laid its foot in 1851, when the first operational land lines were laid by the
government near Calcutta (seat of British power). The telephone services were introduced in India
in 1881. In 1883 telephone services were merged with the postal system. Indian Radio Telegraph
Company (IRT) was formed in 1923. After independence in 1947, all the foreign telecommunication
companies were nationalized to form the Posts, Telephone and Telegraph (PTT), a monopoly run
by the government's Ministry of Communications. Telecom sector was considered as a strategic
service and the government considered it best to bring under state's control.
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509-109-1
Annexure- II
Cellular Phone Subscribers in India as on May 31st 2008
Source: “Cellphone subscriber in India”, http://www.india-cellular.com/Cellular-Subscribers.html
11
Ringing Youngsters – Virgin’s Distinctive Market Segmentation in
India
“Virgin Mobile’s strategy is different. We want to deliver a more tailored, more relevant offering for a single,
distinct segment. We are not pursuing scale for scale’s sake.” 1
“In true Virgin tradition, Virgin Mobile brings to all its customers ten firsts to the Indian telecoms market we’re even going to pay our customers to talk. Now that really is ‘Think Hatke!’.” 2
The year 2008 saw Richard Branson (Branson), the flamboyant founder of Virgin group entering the
competitive Indian telecom market with his Virgin mobile. The arena already had top icons in the fray –
Kumar Mangalam Birla (Idea cellular), Ratan Tata (Tata Tele Services Ltd. (TTSL)), Anil Ambani (Reliance
infocomm), Sunil Bharti Mittal (Bharthi Airtel), Kuldeep Goyal (Bharath Sanchar Nigam Ltd. (BSNL)), Arun
Sarin (Vodafone) and Chandras (Unitech). Branson, famous for his innovative ideas and maverick business
decisions made the inaugural function of Virgin mobile in India memorable with a skywalk well reported by a
delighted media. Indian telecom market is said to have been warily watching Branson’s move in India while
Virgin mobile has been keenly monitoring the telecom market and identifying the ‘youth’ segment. Branson
decided to invest about $100 million on this segment and in March 2008 entered into a franchisee
agreement with Tata Tele services. 3 This is said to be its largest investment in India till date. 4 The TataVirgin deal has fired the first salvo in the micro segmentation of customers. Experts opine that micro
segmentation is essential for a late entrant in the highly competitive telecom market. “This will gain
momentum and others will follow” says Aravind Subramanian, partner and director, Boston Consulting
Group. 5 Would planned market segmentation strategy and colourful packages provided by the service
provider attract the youth and give the new entrant a fair market share to survive in the running waters of
telecomm? How will Virgin make its presence significant in Indian telecomm which has the world’s lowest
call rates and the fastest growth in subscriber base? 6
1 “Virgin Mobile enters Indian Telecom Market with much Flamboyance”, http://www.techshout.com/mobilephones/2008/03/virgin-mobile-enters-indian-telecom-market-with-flamboyance/, March 3rd 2008
2 “SIR RICHARD BRANSON LAUNCHES VIRGIN MOBILE BRAND”,
http://www.virginmobile.in/downloads/Press_Release.pdf
3 “Branson: Gimmick or 21st century master strategist?”,
http://news.moneycontrol.com/india/news/business/bransongimmick-or-21st-century-master-strategist-/18/00/329278,
March 7th 2008
4 “Virgin Mobile enters India through pact with Tata Tele”, http://www.tata.com/tata_teleservices/media/20080303.htm,
March 3rd 2008
5 Prasad Anurag, “Virgin Territory”,
http://www.outlookbusiness.com/inner.aspx?articleid=1121&subcatgid=576&editionid=33&catgid=29
6 “In global telephony, India has many ‘firsts’ to showcase”, http://www.financialexpress.com/news/In-global-telephony,India-has-many-‘firsts’-to-showcase/200201/, May 26th 2007
This Case was written by Saigeetha, Lekha Ravi and Syed Abdul Samad, IBS Research Center. It is intended to be used as
the basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation.
The case was compiled from published sources.
©2009, IBS Research Center.
No part of this publication may be copied, stored, transmitted, reproduced or distributed in any form or medium
whatsoever without the permission of the copyright owner.
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– Sir Richard Branson, Chairman and Founder, Virgin Group.
509-109-1
Indian Telecom Scenario
The rapid rise of mobile users in India had inevitably caught the eye of the private players. Many players
vied with one another to enter the Indian cellular market which adds more than 6 million users every
month 11 to its account (Exhibit I). Indian cellular services, based on technology, can be further divided into
two categories: Global System for Mobile Communications (GSM) and Code Division Multiple Access
(CDMA).
Players like Bharthi Airtel 12 , Vodafone 13 , and Idea Cellular 14 dominate the GSM sector while the CDMA
sector is dominated by Reliance communications 15 and Tata Indicom 16 . Indian mobile telephony market has
witnessed a number of major takeovers and mergers, resulting in significant shifts in market share among
the players. Initially there were only three major private players – Hutchison Telecom (subsequently
acquired by Vodafone), Bharti Airtel, and Idea Cellular. The entry of the state-owned enterprises – BSNL
and MTNL – as mobile operators added to the competition. GSM is more popular than CDMA in India as
GSM provides users the facility to change SIM card at any time and international roaming is much easier for
the former as it has wider coverage. The CDMA based services in India became popular in 2002-2003. 17
Reliance telecom is the leading CDMA operator in India which has emerged as a major challenger to the
GSM operators in India. Reliance also announced plans to launch GSM services in 2007 to gain an
advantage over its existing CDMA infrastructure and to increase its reach in the market. While Reliance’s
7 Bharat Sanchar Nigam Ltd. formed in October, 2000 by Government of India, is world's 7th largest Telecommunications
Company providing comprehensive range of telecom services in India. Its services include Wireline, CDMA mobile, GSM
Mobile, Internet, Broadband, Carrier service, MPLS-VPN, VSAT, VoIP services, IN Services etc.
8 Mahanagar Telephone Nigam Limited was set up on 1st April, 1986 by the Government of India to upgrade the quality of
telecom services, expand the telecom network, introduce new services and to raise revenue for telecom development
needs of India’s key metros.
9 “Telecom Industry in India”, http://www.iloveindia.com/economy-of-india/telecom-industry.html
10 “Fixed service providers”, http://www.iimahd.ernet.in/ctps/basic.htm
11 “UPDATE 1-Vodafone to add 1.5 mln customers/mth at India unit”,
http://in.reuters.com/article/companyNews/idINBOM12314220070615, June 15th 2007
12 Bharti Airtel Limited is India’s largest integrated and the first private telecom services provider with a footprint in 23
telecom circles in India(Source: http://www.airtel.in/wps/wcm/connect/airtel.in/airtel.in/Home )
13 Vodafone Essar is a subsidiary of Vodafone Group Plc and commenced operations in 1994 in India when its predecessor
Hutchison Telecom acquired the cellular license for Mumbai. Vodafone Essar now has operations in 16 circles covering
86% of India's mobile customer base, with over 49.1 million customers. (Source: http://www.vodafone.in/pages/index.aspx)
14 IDEA Cellular is owned by Indian business baron ‘Kumaramangalam Birla’ and has operations in Delhi, Maharashtra,
Goa, Gujarat, Andhra Pradesh, Madhya Pradesh, Chattisgarh, Uttaranchal, Haryana, UP-West, Himachal Pradesh and
Kerala. It has a customer base of over 17 million(Source: http://www.ideacellular.com/IDEA.portal)
15 Reliance communication owned by Indian business tycoon Anil Ambani encompasses a complete range of telecom
services covering mobile and fixed line telephony. It includes broadband, national and international long distance services
and data services along with an exhaustive range of value-added services and applications.(Source:
http://www.rcom.co.in/webapp/Communications/rcom/index.jsp)
16 Tata Comm. is India's leading international telecom service provider. It is part of the Tata Group And is a leader in
wireless USB Modem, Wireless Laptop Internet Card and CDMA Mobile Phones. It started as a successor to the erstwhile
Overseas Communication Services, and went on to become the premier provider of international voice and data services.
(Source: http://www.tataindicom.com/)
17 Pandey shankar Ravi, “CDMA MOBILE PHONES: A Chicken-egg Situation”,
http://voicendata.ciol.com/content/vNd100/2003/103062408.asp, June 24th 2003
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India being the second-most populous country in the world is considered as an emerging market by telecom
players across the globe. Telecommunication sector in India is traced way back from 1851 (Annexure I).
The telecommunication sector in India is divided into two segments: Fixed Service Provider (FSPs), and
Cellular Services. Fixed line services consist of basic services, national or domestic long distance and
international long distance services. The Government operators (BSNL 7 and MTNL 8 ) account for almost
90% of the revenues from basic services. 9 Private sector services are available only in selective urban
areas, and collectively account for less than 5% of subscriptions. 10 However, private services focus on the
business/corporate sector, and offer reliable, high-end services, such as leased lines, Integrated Services
Digital Network (ISDN), Closed user group (CUG) and videoconferencing.
509-109-1
decision upset its GSM competitors with the fact that Reliance would be enjoying twice the opportunity to
target subscribers, it was not the only operator in India to pursue a dual-technology strategy. Reliance
received GSM spectrum for 14 new circles in 2008. 18 BNSL also went on to launch CDMA2000 1x EV -DO
services in selected cities. This helped to take advantage of the demand for high-speed mobile data 19
among business users.
Group Company
Airtel(GSM)
Reliance (CDMA + GSM)
Vodafone Essar(GSM)
BSNL(GSM)
IDEA(GSM)
Tata (CDMA)
Aircel(GSM)
Spice(GSM)
MTNL(GSM + WLL 20 )
BPL(GSM)
HFCL (CDMA)
Shyam (CDMA)
Total (All India)
Total Subscribers
66825935
48696295
47466853
36997418
26140643
25476062
11491986
4497675
3350437
1331261
326150
108396
272709111
Source: “Group Company wise market share”, http://www.india-cellular.com/MarketShare.html
Cellular operators get ample revenue from international and domestic long distance telephony services.
The reduction in tariffs for airtime, national long distance, international long distance, and handset prices
has increased the demand subsequently. The mobile phone subscriber base in India skyrocketed to more
than 149 million at the end of December 2006 showing a substantial growth of nearly 100% from about 75
million subscribers in December 2005 21 (Annexure II). The sector recorded the growth by an average rate
18
Kurup S Rajesh, “DoT, Trai differ over rollout obligation for dual-tech firms”, http://www.businessstandard.com/common/news_article.php?leftnm=10&bKeyFlag=BO&autono=323630, May 21st 2008
19 High speed data is the internet connectivity services provided by the telecom operators.
20 Wireless Local Loop.
21 Shrapnel Bis, “India Telecom Report 2007”,
http://www.strategyanalytics.com/default.aspx?mod=ReportAbstractViewer&a0=3378, April 19th 2007
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Exhibit I
Major Telecom Players and Their Market Shares
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of 92.6% in the last five years to reach 75.9 million subscribers at the end of 2005, of which 77.7% were
GSM subscribers and remaining CDMA customers. 22 This growth trend is continuing in full force, with the
number of mobile customers increasing by 18.7% in the first three months of 2006 to reach 90.1 million. 23
Back in 1948, India’s teledensity 24 was only 0.02% which grew to 1.94% in 1998. 25 The New Telecom
Policy of 1999 liberalised the Indian telecoms market and triggered the penetration level which reached to
7.17% in 2003, 9.2% in 2004 26 and 11.43% in 2006 and is expected to reach 18% 27 by March 2009
(Exhibit II). The increase in teledensity showed a positive sign for the entry of foreign players like Virgin
mobile into India.
Exhibit II
Tele-density
Tele density(%)
20
18
15
11.43
10
9.2
7.17
Tele density(%)
5
0
0.02
1948
1.94
1998
2003
2004
2006
2009
Year
Compiled by the authors from various sources
In an attempt to prevent many foreign players entering the sector, Telecommunication Regulatory Authority
of India (TRAI) 31 has added an array of anti-hoarding conditions to the licenses, including locking them for a
period to prevent early re-sale, and retaining fairly ambitious roll-out requirements both to deter carpetbaggers and to stimulate rural roll-out (Exhibit III).
22
Paradis Isabelle, “India's telecom growth is fulfilling its promises”, http://www.hottelecoms.com/cp-articleoctober2006.htm, October 2006
23 Ibid.
24 The number of telephones in use for every 100 individuals living within an area. A teledensity greater than 100 means
there are more telephones than people.
25 Patel Ricken, “Prospects for e-Advocacy in the Global South”, http://groups.dowire.org/groups/research/files/f/134112007-03-21T170331Z/Prospects%20for%20e-Advocacy%20in%20the%20Global%20South_Jan_07.pdf, January 2007
26 Ibid.
27 “India’s teledensity to touch 18% by '09”
http://us.rediff.com/money/2004/dec/28tele.htm, December 28th 2004
28 “India’s telecom growth is fulfilling its promises”, op.cit.
29 Ibid.
30 Ibid.
31 The Telecommunications Regulatory Authority of India or TRAI (established 1997) is the independent regulator
established by the Government of India to regulate the telecommunications business in India.
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Broadband development, one of the major services of telecom players is in its infancy in India. At the end of
2004, the country only had 135,000 broadband customers; however this number had grown by 568.9% in
2005 to reach 903,000. 28 In the first quarter of 2006 alone, the number of broadband customers increased
by 49.3% to reach 1.3 million. 29 For the new player – Virgin, there could not have been a better time to
stage an entry. With over 1 billion inhabitants and a telecom market brimming with competition, India is
today (2008) one of the world’s most dynamic and promising telecom markets, surpassing China in terms of
market vitality. 30
509-109-1
Exhibit III
Key Issues for Foreign Cellular Players
Source: Shrapnel Bis, “India Telecom Report 2007”,
http://www.strategyanalytics.com/default.aspx?mod=ReportAbstractViewer&a0=3378,
April 19th 2007
The growth drivers of telecom market have been so intense that the penetration rates in metros are
reaching near-saturation. Amongst Indian metros, Chennai has been rated to have 80% mobile penetration
while Mumbai and Delhi are at around 70%. 32 With government offering tax breaks to attract companies to
build cell phone towers in remote places, mobile marketing has shifted its focus from urban to rural India. All
Cell phone companies came up with attractive packages to rural customers. BSNL is planning to relaunch
its failed Grameen Sanchar Sewak scheme (GSS) in which the postman in rural areas carry mobile phones
to rural residents in places without landlines so that they can make calls. The postmen are rewarded with a
20% commission on the calls made and 5% is given to the Department of Post. 33 Private players are also
thinking along these lines for gaining penetration into rural markets.
Airtel, which is the largest 34 private mobile service provider in India focuses on strengthening its brand
image and enters into a tie up with shop owners in the remotest parts of the country. Airtel also focuses on
passing information on crop weather, yields, fertilizers, etc. over mobile phones to the rural masses. Tata
Tele services albeit a slow-mover in the market is successfully targeting rural markets using Tata Group
distribution. It uses the distributors of Tata chemicals to hawk the telecom service to the customers who are
loyal to the brand. Amidst this tug of war happening in the telecom industry, Richard Branson’s Virgin
Telecom entered the Indian stage with its unique strategies. Virgin came into the Indian telecom market
partnering with Tata Tele services (TTSL) as a franchisee.
Virgin Mobile’s Foray into India – Target ‘youngistan’
Virgin Mobile belonging to the UK-based Virgin group entered the Indian market to specifically tap the youth
segment. The Virgin-TTSL tie- up also offers the first organised second-hand handset market in India. The
company has done an extensive research on the customer usage in the rural market as it was a largely
potential one and discovered that rural market demands simple phones with voice and text features.
Branson plans to bring the second-hand phones to meet the bill. Virgin estimates that there are 500 million
phones lying dead in the drawers in US. 35
32
Rajendran M, “The Great War”, http://www.businessworld.in/index.php/Telecom/The-Great-War.html, February 15th 2008
Ibid.
34 Chaterjee Surojit, “Bharti Airtel among top telecom companies in the world with 50 million wireless subscribers”,
http://in.ibtimes.com/articles/20071117/bharti-airtel-sunil-mittal-telecommunications-mobile-phone-wireless-vodafonereliance.htm, November 17th 2007
35 “The Great War”, op.cit.
33
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¾ Rural coverage is the key issue facing Indian tele companies at present, as urban
growth slows. Operators need to balance the high costs of roll-out to village areas
against the likely low returns. Village phones are also an option for mobile operators
to consider.
¾ Dual-technology roll-out is likely to be an important issue for some time to come,
with operators maintaining twin CDMA and GSM networks. However, it is expected
that in the long run, most operators will drift back to GSM-based solutions
¾ Spectrum allocation is a major issue In the Indian market, and it is hoped that the
imminent spectrum distribution will ensure that the bulk of the available spectrum
goes to the operators who will use it directly, rather than hoarding or re-selling it.
509-109-1
Anil Sardana, managing director of TTSL countered these complaints stating, “This is not an MVNO
agreement between Virgin and Tata Tele services. There is no airtime contract between us. Virgin Mobile is
just another brand that the company would offer. It is us who will invest in infrastructure and get regulatory
approvals and operate as a network service provider. Virgin, on its part, would just lend its brand and the
value-added services (VAS) that come with it to us.” 40 TRAI gave a clean chit to the agreement after a
thorough investigation and enquiry. According to a TRAI official, “All the companies explained their position
to us and gave us the requisite information we needed. As a regulator, we were also able to understand
how these agreements worked. After hearing out the companies and examining the information they
submitted, we have found that they are not in any violation and government's revenues are not impacted.” 41
According to Agence France-Presse (AFP) 42 , the venture differentiates itself from their competitors by
offering “more tailored and relevant” music, entertainment, news, sports and Bollywood contributions to
youth. According to MA Madhusudan, chief executive officer, Virgin Mobile India, “Our research shows that
youth have a high propensity to consume mobile services and are looking for a solution that gives them the
flexibility to talk to their peers at rates that are pocket friendly.” 43
With a “Think Hatke” 44 philosophy, Virgin aims at youth and offers a wide range of new plans. Virgin Mobile
India plans to quickly attract several million customers and thus is focused more on their distribution
strategy. According to P Madhavan, chief sales and distribution officer, Virgin Mobile India on their retail and
distribution strategy, “Our retail strategy has been built around a focused model that gives efficiencies to
cater to a large segment of our target market. Our research shows that youth love to shop and for them
ambience, choice and service experience play a critical role in influencing their buying decision. Bearing this
in mind, we have tied up with a host of modern retail outlets including Big C, Sangeetha, The Mobile Store
and Univercell in the state to retail our products.” 45 Virgin Mobile has been taking a number of initiatives to
36 Troaca Florin, “Virgin Mobile Brings India its First National Mobile Service for Young People - In collaboration with Tata
Teleservices”, http://news.softpedia.com/news/Virgin-Mobile-Brings-India-its-First-National-Mobile-Service-for-YoungPeople-80115.shtml
37 A MVNO is a mobile operator that neither owns spectrum nor has its own network infrastructure. Instead, it buys airtime
from cellular operators in bulk and resells it under its own branding.
38“ Mobile virtual network operators not viable in India: Mittal”, http://www.thaindian.com/newsportal/business/mobilevirtual-network-operators-not-viable-in-india-mittal_10035440.html, April 7th 2008
39 Ibid.
40 “Virgin Mobile enters India, but not as MVNO”,
http://economictimes.indiatimes.com/News/News_By_Industry/Telecom/Virgin_Mobile_enters_India_but_not_as_MVNO/art
icleshow/2832231.cms, March 3rd 2008
41Philip Thomas Joji, “Tata Tele-Virgin deal gets TRAI clean chit”,
http://economictimes.indiatimes.com/News/News_By_Industry/Telecom/Tata_TeleVirgin_deal_gets_TRAI_clean_chit/articleshow/3131834.cms, June 16th 2008
42 Agence France-Presse (AFP) is the oldest news agency in the world, and one of the three largest with Associated Press
and Reuters.
43 Ibid.
44 “Think differently”- Advertisement caption of Virgin mobile in India.
45 “Virgin Mobile eyes larger chunk of youth market”, http://www.dnaindia.com/report.asp?newsid=1176780&pageid=2,
July 10th 2008
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Virgin Mobile India is said to be the country’s first national mobile service that focuses only on teenagers
and young users. 36 Usually Virgin enters as a Mobile Virtual Network Operator (MVNO) 37 wherever it enters
into operations. India doesn’t permit MVNOs. As Virgin Mobile India does not have a network of its own; it
operates by collaborating with TTSL in India. There was controversy during its initial launch in India when
industry experts opined that an operation of Virgin with TTSL was akin to an MVNO. “I don’t think MVNOs
can succeed at the current rates,” 38 Mittal, Bharti Group chairman and managing director commented at a
conference held by the Confederation of Indian Industry (CII). Other operators opined this as a “backdoor
entry”, and urged the government to clarify on the partnership as it was on the lines of a MVNO. 39 The
Cellular Operators Association of India shot off a letter to the Department of Telecom (DoT) seeking clarity
on whether or not MVNOs are allowed in India (Exhibit IV).
509-109-1
attract the youth segment to adopt its services. This includes attractive and sleek handsets and many
innovative offers. They were the pioneers to offer credit for incoming calls (Exhibit V).
Exhibit IV
Excerpt of the COAI (Cellular Operators Association of India) Letter
“As far as we are aware, the present telecom policy does not either permit MVNO or the
reselling of airtime. In light of the above, we would appreciate if you could inform us whether
and when the policy has been amended to allow for introduction of MVNOs,” the COAI letter
said. 46
“It may be appreciated that if the company is acting/ operating as a franchisee of Tata Tele
services, then its services can be retailed only under the Tata Indicom brand. It is evident
from the launch presentation that this is not the case. We would deeply appreciate if you
could kindly look into this matter and clarify as to in what capacity Virgin Mobile is entering
the Indian market and the terms and conditions thereof.”
Compiled by the authors from: (a)
http://www.thehindubusinessline.com/2008/02/29/stories/2008022952511200.htm
(b) http://www.thehindubusinessline.com/2007/11/20/stories/2007112052910100.htm
Virgin mobile did a thorough customer survey and found out the niche market they have to aim at. “There
are more than 215 million Indians aged between 14 -25 years. Over the next three years, we expect this
segment to be adding over 50 million new youth subscribers and to have mobile service revenues of over
350 billion dollars. By focusing exclusively on a single segment and by continuing to deliver innovative
services that cater to this segment’s distinct needs, we believe Virgin Mobile can capture more than 10
percent of this incremental market within 3 years of launch,” said Jamie Heywood, deputy CEO, Virgin
Mobile India. 47 “At Virgin Mobile we believe that the existing operators are all pursuing the same strategy: to
get as many subscribers as quickly as possible,” 48 added Branson.
However, he considers the deal with TTSL as the best option available as India has a closed policy
regarding foreign players. He comments, “India is very close to when it comes to foreigners competing
within your marketplace. If you want to set up a domestic airline in India, it’s impossible. If you want to move
into financial services in India it is near on impossible. If you want to set up a mobile phone MVNO it’s
impossible. We are very pleased that we have managed to do an agreement with Tata because Tata has
got a great network in India. It is a network we can actually get through when you make a call, which with
most of the other networks you can’t. We have got a great brand particularly for the younger market in India.
So, doing a sort of branding cum knowledge-based deal rather than MVNO has been a compromise. But at
least we are up and running and Virgin Mobile is available from today in India, and Indians will appreciate
the service that we are going to offer them.” 49
46
“Virgin’s entry into India telecom space near certain”,
http://www.thehindubusinessline.com/2008/02/29/stories/2008022952511200.htm, February 29th 2008
47 “Tata Teleservices launches Virgin Mobile branded services to India’s youth”,
http://www.virginmobile.in/downloads/Press_Release.pdf, March 2nd 2008
48 Ibid.
49 “Branson: Gimmick or 21st century master strategist?”, op.cit.
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“On going through the presentation (made during the launch), it may be noted that there is
absolutely no mention of Tata Tele services or the Tata Indicom brand in the entire
presentation nor is there any information as to the capacity in which Virgin Mobile is entering
the Indian mobile market.
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¾ Get paid to receive calls: Virgin Mobile customers will get 10 paise credit for every incoming minute they receive from any network
¾ Easy Handset upgrades: Virgin Mobile is India’s first CDMA service where all customers
will be on RUIM (SIM)-based phones, thereby giving them the convenience of upgrading
their phones without having to change their number or re-enter their address book
¾ True Care: All Virgin Mobile customers will be called back by the same call center agent to
address their query
¾ Call more for less: After the 1st 2 mins of calls each day (which will be charged at INR 1)
all Virgin Mobile customers nationwide will automatically be able to call any local network at
any time of day for only 50 paise per minute with no commitment or extra charge
¾ One Touch access to V-Bytes: 100% of Virgin Mobile-branded handsets will have a
simple one-touch access button that takes customers directly to our unique VBytes portal
¾ Safe Secrets: All Virgin Mobile RUIM (SIM) cards will have a secret folder where SMSs
can be stored and password-locked to keep them safe from prying eyes
¾ ‘100% colour, 100% FM’ handsets: Virgin Mobile is the only CDMA mobile service brand
to offer its customers a handset range that is both 100% colour and 100% FM-radio
enabled
¾ 100% Bling: Virgin Mobile offers India’s first mirror finished clam shell phone with dual
screens for less than INR 2500
¾ Unlimited access to V-Bytes for a simple daily charge: Virgin Mobile customers can
enjoy unlimited access to our unique. VBytes data portal, including free Virgin selected
content, for a simple daily charge of only INR 5
¾ TGI weekend Bolt-on: Virgin Mobile customers can enjoy a weekend of extreme calling
and texting by paying only INR 18 to get 100 local SMS and all local mobile calls at 30
paise from Friday to Sunday.
Source: “Tata Teleservices launches Virgin Mobile branded services to India’s youth”,
http://www.virginmobile.in/downloads/Press_Release.pdf,March 2nd 2008
With a market share of less than 10% 50 , (Exhibit VI) the deal could help Tata to get the market push it
needs. Tata was successful in carrying out the proposal and convincingly brought in Virgin. Tata managing
only a sixth place amongst telecom majors in India saw the opportunity to capture further market share.
“We are very excited about our association with the Virgin Group. Their service innovation and strong brand
resonance with the youth segment will allow Tata Teleservices to offer a truly world-class service
experience to our youth subscribers. This association also supports our efforts to be the fastest growing
mobile network in India,” declared Anil Sardana, managing director of Tata Teleservices. 51 Under the terms
of deal, Tata will be paying Virgin a royalty for the use of its brand and a share, per subscriber, of its future
revenue whereas Virgin is expected to license the Virgin Mobile brand and technology expertise in the area
of value-added services (VAS) which includes video calling, where the user can see the person he/she
talking to, video clips of celebrity interviews, film snippets, comedy clips, games, and a wide coverage on
news and sports and handsets to TTSL. This also provides TTSL a competitive edge in using Virgin's core
expertise in marketing and service innovation to create offerings mainly targeted at the youth segment.
50
Prasad Anurag, “Virgin Territory”
http://www.outlookbusiness.com/inner.aspx?articleid=1121&subcatgid=576&editionid=33&catgid=29
51 “Tata Teleservices launches Virgin Mobile branded services to India’s youth”, op.cit.
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Exhibit V
VIRGIN MOBILE FIRSTS
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Source: Prasad Anurag, “Virgin Territory”
http://www.outlookbusiness.com/inner.aspx?articleid=1121&subcatgid=576&editionid=33&catgid=29
According to Madhusudhan Gupta, a senior Research Analyst at Gartner, “It’s a win-win situation for both
the sides, especially when CDMA has not done that well.” 52 Researches made by experts say that India is
home to 215 million people in the 14-25 age group and the urban youth mobile users is expected to
increase 50 million between 2008–2010. 53 According to telecom analysts, high-net-worth customers unlikely
shift operators for a new brand. Virgin mobile would thus be left with only low-paying and cost conscious
users as the target group.
Can Virgin mobile compete on these terms and move up the average revenue per user (ARPU) chain?
“The cost and financial implications of sharing a network can be huge. The time-frame for a decent return
on investment may also be small, and profits may also get affected,” says Gartner’s Gupta. 54 “The brand
hype will die after sometime, and then it will all boil down to quality of service, pricing and product
suitability,” says an analyst who tracks telecom companies. 55 Other players view Virgin’s entry as a
backdoor-entry. While commenting on his entry to India, Branson opines, “If you can’t make it in India, You
won’t make it anywhere.” 56 Will the appealing foreign brand name, Indianised network, segmented market
and huge investment optimise Virgin’s profits and position?
52
“Virgin Territory”, op.cit.
Ibid.
54 Ibid.
55 Ibid.
56 Kripalani Manjeet, “Virgin’s big move”,
http://www.businessweek.com/globalbiz/blog/eyeonasia/archives/2008/03/virgins_big_ind.html, March 2nd 2008
53
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Exhibit VI
Tata Tele Services- Makes the Call
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Annexure I
History of Indian Telecommunications
The first wind of reforms in telecommunications sector began to flow in 1980s when the private
sector was allowed in telecommunications equipment manufacturing. In 1985, Department of
Telecommunications (DOT) was established. It was an exclusive provider of domestic and longdistance service that would be its own regulator (separate from the postal system). In 1986, two
wholly government-owned companies were created: the Videsh Sanchar Nigam Limited (VSNL) for
international telecommunications and Mahanagar Telephone Nigam Limited (MTNL) for service in
metropolitan areas.
In 1990s, telecommunications sector benefited from the general opening up of the economy. Also,
examples of telecom revolution in many other countries, which resulted in better quality of service
and lower tariffs, led Indian policy makers to initiate a change process finally resulting in opening up
of telecom services sector for the private sector. National Telecom Policy (NTP) 1994 was the first
attempt to give a comprehensive roadmap for the Indian telecommunications sector. In 1997,
Telecom Regulatory Authority of India (TRAI) was created. TRAI was formed to act as a regulator to
facilitate the growth of the telecom sector. New National Telecom Policy was adopted in 1999 and
cellular services were also launched in the same year.
Source: “Indian telecom industry”, http://www.iloveindia.com/economy-of-india/telecom-industry.html
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Indian Telecommunications laid its foot in 1851, when the first operational land lines were laid by the
government near Calcutta (seat of British power). The telephone services were introduced in India
in 1881. In 1883 telephone services were merged with the postal system. Indian Radio Telegraph
Company (IRT) was formed in 1923. After independence in 1947, all the foreign telecommunication
companies were nationalized to form the Posts, Telephone and Telegraph (PTT), a monopoly run
by the government's Ministry of Communications. Telecom sector was considered as a strategic
service and the government considered it best to bring under state's control.
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509-109-1
Annexure- II
Cellular Phone Subscribers in India as on May 31st 2008
Source: “Cellphone subscriber in India”, http://www.india-cellular.com/Cellular-Subscribers.html
11
