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Virgin's big India move

Posted by: Manjeet Krpalani on March 2, 2008

On Sunday, May 2, after gratifying everyone with one of his usual gimmicks - he climbed up the face of the Hilton Towers in Bombay - Richard Branson climbed down to announce his biggest move in India yet. He’s become a franchisee of Tata Teleservices, a domestic telecom player providing CDMA cellular services.

This is Virgin’s third India play - after Virgin Air’s India routes and a radio station, Fever 104 FM. And it’s Virgin Mobile’s seventh telecom market (others include South Africa).

Virgin Mobile’s service in India is specificially targeted to Indian youth, those 400 million Indians between the ages of 13 and 30, which Branson says, have not been paid attention to in India’s crowded telecom space. I thought most of India’s telecom players targeted the youth market because the young are more tech-savvy with cell phones than the old and use it more, but Branson’s folks say the Indian telcos try to be all things to all people.

Virgin Mobile’s tag line: “Think hatke” (think away from the norm)is certainly catchy, and so is his hardware - phones by Nokia, Samsung and Huawei - black phones with red lines outlining them. All costing between $60 and $120 each, all with full colour and FM radio access - to listen to Fever 104, no doubt.

Virgin’s team of 250 spent nearly nine months researching their target audience. They discovered that the key to India’s youth is their goal: success. Anything it takes to get to the top. They looked for little things that Indian children wanted, and discovered that Indian parents take away their childrens’ cell phones at night and read the text messages they send or receive - which kids hate. So Virgin’s value added service is offering a password-protected folder to the young, so parents read the messages. Great for the kids, too bad for the parents. Best of all, the text messages will be the cheapest in the market - 30 paise, or under one US cent, affordable even to young rural Indians. Weekend call rates will also be 30 paise.

The market numbers are compelling: 215 million Indian cellular subscribers between 15 and 25 years of age, increasing by 50 million more subscribers byt 2010, drawing revenues of an estimated $8.75 billion by then. “If you can’t make it in India,” said Branson, “You won’t make it anywhere.”

It’s an unusual deal, but one that will work for both Virgin and Tata Teleservices.

Because India's telecom regulations do not permit Virgin to do what it does in other markets - to buy minutes and resell them, what's call in industry parlance being a Mobile Virtual Network Operator - it's gone the franchise route. Others eager to invest in India's hot telecom market could follow that same route.

For Tata, which has been a laggard in the telecom market, and even the narrow CDMA space - 23 million subscribers, compared to 46 million for CDMA market leader Reliance - Virgin, with it's clever approach to marketing and expertise in handling customer service, will get a boost. Tata's existing customers won't be subsumed by Virgin - though they will have access to some of Virgin Mobile's services, and calls between Tata and Virgin subscribers will be free.

For Virgin, it means access to Tata's vast India-wide distribution system - an advantage it could never have had on its own. Virgin intends to launch immediately in 50 Indian cities, and reach 1,000 cities by the end of the year.

Most importantly, Virgin won't be bothered with issues of infrastructure - the biggest headache of doing business in India. Tata will handle all the regulatory approvals and other mind-numbing details. Branson says of all the cellular operators he has used while in India, except for Tata, all suffered from a high number of dropped calls. That of course is a problem with the Indian government not releasing enough bandwidth. But Tata, as Branson points out, has a lot of capacity - and it's better to have fewer customers and higher capacity in a growing market like India.

The partners won't discuss the financials or the revenue sharing structure, but for sure: Tata's moribund telecom market will get a moutainous boost from being with Branson.

It will be interesting to watch how the Indian telecom market, already the most efficient business in India and perhaps in the world, will play out with this new competition. It's adjusted beautifully before, and made the market deeper, cheaper, wider.

Reader Comments

Jalal Alamgir

March 5, 2008 4:43 PM

An unusual type of deal--being a franchisee--but the move makes sense.

What's impressive is that unlike the norm, which is to prioritize financial and legal research, Virgin went through deep cultural analysis about the Indian market: "Virgin’s team of 250 spent nearly nine months researching their target audience. They discovered that the key to India’s youth is their goal: success."

This indicates that Virgin is poising itself for long-term expansion and success in India, and probably going about it the right way, esp. if it has also looked at how Virgin India would work operationally.

Jalal Alamgir

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