6
How global telcos can profit from India’s wireless experience
of these outlets also sell SIM cards directly to
customers and hence act as distributors for
the operators. That approach stresses high
volumes and low commissions to sales part-
ners. For instance, Indian telcos typically pay
4 percent to 5 percent commissions to partners
on prepaid recharges. Of that, a minuscule
1 percent to 1.5 percent goes to the distributor
and the remaining 2.5 percent to 3.5 percent
is paid to the retail outlet. To drive costs down
even further, Indian telcos also promote self-
service electronic recharging, rather than paper-
based methods, for prepaid phones. Today,
electronic recharges account for more than
80 percent of all sales.
The few telco-owned or franchised outlets in
existence are maintained mostly for servicing.
Vodafone Essar offers postpaid, prepaid, roaming
and value-added services through 1.2 million
retail outlets. But only a fraction of these,
1,150, are company owned and 6,500 consist
of franchises and exclusive dealer arrangements.
Indian telcos also team with unconventional
partners. For example, Airtel entered into an
alliance with IndianOil to gain access to 23,000
retail outlets at gas stations and cooking gas
distribution outlets. Other major Indian telcos,
such as Reliance Communications, also main-
tain a low ratio of owned outlets.
Another Indian telco practice is to keep sub-
scriber acquisition costs at the barest possible
minimum. Thus, most telcos have little stake
in the new handset market. That allows them
not only to maintain a very minimal device
inventory, but it frees them from making large
investments in the handset supply chain.
Instead, a thriving open handset market has
developed in India.
That is in direct contrast to those in developed
markets, where wireless companies often bear
the full burden of handset subsidies. These up-
front, fixed expenses can comprise as much as
one-third of subscriber acquisition costs. In
Western Europe, for example, handset subsidies
can total as much as 12 percent to 14 percent
of sales, on average. For GSM wireless com-
panies in India, handset subsidies are zero.
For CDMA service providers, they amount to
less than 3 percent of revenue.
Finally, to pump up user demand, India’s tel-
cos aggressively promote on-net and off-peak
calling, meaning they provide lower prices
for calls between customers within company
networks and during evening and overnight
hours. Not only do these policies redistribute
and increase usage, they bring down inter-
connect and termination fees between telcos.
Intra-circle roaming agreements also maximize
network usage. How India’s telcos manage
these call reallocation efforts reveals some
marketing ingenuity.
For instance, Vodafone offers 1,000 local min-
utes for a minimal cost to customers between
the hours of 10 PM and 8 AM. MTS offers 150
on-net calls. Similarly, Airtel bills in-network
calls at bargain rates compared with out-of-
network calls. And Reliance lets customers
make unlimited local and long-distance calls
if the consumer takes a prepaid CDMA con-
nection for Rs 599, or about $13.
What can a global company learn
from Indian wireless companies?
The business practices of Indian telcos are not
necessarily directly translatable to companies
elsewhere. But the principle of rigorously
identifying and justifying costs is. The stark
difference between the average annual cost
per connection of Indian wireless companies
($43) and that of global peers ($406) is mostly
explained by higher subscriber acquisition and
retention costs, network-related costs and
personnel costs (see Figure 6). Put another
way, a telco must go deep enough within its
operating model to understand what increases
cost in its business model—and then figure
out how to reduce them. As part of such an
analysis, a company also needs to understand