Virgin's Big Cellular Shout-out in India

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Lagging Behind Reliance

Getting the Virgin franchise could provide a much needed lift for Tata. Other companies in the Tata Group dominate their industries: Tata Steel, for instance, is the country's top steelmaker and Tata Motors has recently won global acclaim for its groundbreaking low-cost car, the Tata Nano (BusinessWeek.com, 3/10/08).

However, Tata's cellular operator has been a laggard. The company has just 25 million subscribers for its CDMA service (the second-generation cellular standard operating on technology developed by San Diego's Qualcomm. That's just half the 46 million subscribers to market leader Reliance Communications.

Tata had an early start but it was not as aggressive as Reliance. More recently, though, it has been competing fiercely, especially in value-added services. Reliance is also starting to focus on its GSM, or global system for mobile, services, the most popular cellular standard worldwide, which is where the majority of India's telecom players, such as market leader Bharti and No. 2 player Vodafone compete.

Custodians of the Virgin Brand

Tata executives now hope Virgin, with its clever approach to marketing and expertise in handling customer service, will help close the gap with Reliance. While Tata's existing customers won't automatically switch to Virgin, they will have access to some of Virgin Mobile's services, and calls between Tata and Virgin subscribers will be free. "We are custodians for the Virgin brand," says Anil Saldhana, chief executive of Tatatele Services. "So all value-added services we develop can go to Virgin, too."

For Virgin, the franchise arrangement with Tata provides access to the Tata Group's vast nationwide distribution system, an advantage the British company could never have had on its own. Virgin and Tata intend 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 infrastructure challenges, the biggest headache of doing business in India. And Virgin won't have to deal with the country's regulators because Tata will be responsible for receiving all the regulatory approvals. Branson says all the cellular operators he has used while in India, except for Tata, suffered from a high number of dropped calls. That of course is more a problem with the Indian government not releasing enough bandwidth than investments by operators.

But Tata, as Branson points out, has a lot of capacity. It's better to have fewer customers and higher capacity in a growing market like India. And, Heywood adds, "It creates network space for us."

Kripalani is BusinessWeek's India bureau chief.