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Case Analysis I
Key Issues
1. Delhi/NCR region had a total population of ~25 million (page 209), while the total number of sub- scribers stood at 22.7 million (Exhibit 12). This highlights that the penetration of mobile services is probably not an issue in the Delhi circle. Hence, the growth going forward for telecom opera- tors is expected to be driven more either by poach- ing the existing customers from other operators or through increasing ARPU of its own subscriber base, especially with the MNP regime coming into force.
2. While Aircel had gained substantial subscriber base in the last two years (since 2008) from virtually non- existent in December 2008 to 8.5 per cent of sub- scriber market share in January 2011 (Exhibit 12), its revenue market share was substantially lower at 2.5 per cent as of September 2010 (Exhibit 13). This indicates lower revenue per subscriber (ARPU) compared to other telecom operators in the Delhi circle (as also illustrated in Exhibit 2). The ARPU for pre-paid customers was lower at ` 100.8 as against ` 250 for post-paid customers (page 204). Clearly the high pre-paid mix is driving the overall ARPU down (at ` 103.9 as of January 2011 from numbers given on page 204). Lesser instances of recharges by pre-paid customers are in turn driving the pre-paid ARPUs down (page 208-209).
3. Analyzing the issue of lower ARPU for pre-paid customers further, in part it might also be driven by the current incentive structure at the retailer level. Retailers are non-exclusive with other telecom operators and hence, their only objective for re- commending a particular connection/recharge is financial (currently). Based on Exhibit 11, the retailer commission for new activation is ~20 per cent (assuming ` 50 talk time with activation) and for first recharge it varies between 30 and 35 per cent with higher commission percentage for a lower recharge value. The commission percentage for sub- sequent recharges is very low at 4 per cent (though higher than competitors). Hence, the commission structure incentivizes retailers to focus on activation and first recharge and then motivate the customer to take up a new connection (could be a new connection with Aircel itself for an existing Aircel customer) to save money, while they...