CDMA: Reliance Bets Big on Arithmetic

In the first half of December 2002, 1,000 top Reliance Group officials from
across India headed for Mumbai. Later, at a non-publicized meet, they took an
impossible sounding pledge–to get 10 million CDMA subscribers for Reliance
Infocomm in a month’s time–with group CMD Mukesh Ambani.

Ambani and his troop have since been working day and night to make ‘Dhirubhai’s
sapna’ a reality by end-January or mid-February. The exact deadline would
depend on the date when the formal go-ahead is given to the direct sales agents
(DSAs). (Unofficially, things would have started rolling out much earlier).

The 1,000-strong core team would attack the market with a seemingly simple
game plan. They would appoint around 200,000 DSAs across the country, who in
turn would need to rope in just 50 subscribers each, to achieve the 10-million
magical mark.

	"We never work for less than 20 percent returns" Mukesh Ambani, CMD, Reliance Infocomm CDMA: Will This Change India? Coverage, cost and content are the universal success factors for mobile services. Does CDMA–the fourth C–have them all? CDMA: Korean Recipe for Success The South Korean case study offers some useful tips for Indian CDMA service providers CDMA: Not Hotcakes Yet Features are compelling now, but prices aren’t exactly affordable–criticamass is needed CDMA: India’s a Live Testbed India will have one-eighth of the new mobile subscribers in the world in the next six years. Even if half of those are on CDMA, it could change the technology’s fate CDMA: Already 3G, Practically Cause CDMA does all that other technologies marketed as 3G do, and does it better CDMA: As Data Comes to Fore… CDMA will grow, but not enough to compare with the GSM subscriber base, till 2005

The operation, to be carried out under the aegis of Dhirubhai Ambani
Entrepreneur Program (DAEP), would offer DSAs the attractive proposition of
participating in future businesses of Reliance like insurance, petroleum
retailing, and LPG retailing.

New, Effective

Marketing Model

Earlier, Reliance had considered appointing channel partners, but dumped the
plan once the DSA idea cropped up. (The DSA model is applicable only for a few
months.) The DSA model offers several advantages. One, the DSA and his staff can
do personalized, direct marketing–in a manner not achievable by channel
partners–at no expense to Reliance. Reports are that DSAs are utilizing all
tools like fax, e-mail, telephone, cable TV network, and one-to-one meetings to
tell prospective customers about ‘Reliance IndiaMobile’. This is also
building more hype for the service and allowing Reliance to spend a lot less on
advertisement, but more importantly, enabling it to reach out to the optimally
potential audience.

From customer acquisition to verification and validation of the supporting
documents, to collection of cheques and depositing them at the Reliance
collection center, DAEs will handle all the back-end operations. Reliance is
thus saved of huge amount of time, effort and money.

Obviously, Reliance is betting big on the entrepreneur’s zeal. As compared
to channel partners, DAEPs are likely to put more heart into the project.

For becoming a DAEP, one has to provide a security deposit of Rs 10,000 and
buy a WLL (M) connection. He has to also undergo a training of one day and pass
the test that follows.

The DAE will get Rs 10,000 back if he is able to get 10 connections. For the
next 14 transactions, he gets no incentives, but for 25—49 connections, the
incentives are at the rate of Rs 100 per transaction; for 50—74 connections,
the rate is Rs 200; and for 75—99 connections the rate is Rs 300. Thereafter,
incentives are at the rate of Rs 400 per transaction. In order to recover his
investment, the DAE has to bag a minimum of 50 connections.

The very appointment of a DAE ensures one connection for Reliance, as that’s
one of the conditions for becoming a DAE. Thus, even before the start of the
service, the company has a base of around 200,000 subscribers, whereas BSNL was
able to get the same number four weeks after the launch of its CellOne cellular
services.

Comment:
The model neatly combines the best features of the traditional channel model and
the ‘Amway’ model. Reliance gets a ready subscriber base of 200,000 DAEs by
default. Moreover, a whole bunch of backend operations is ‘outsourced’ to
the DAEs for no fee. Smart!

Single Plan

Initially, the company has opted for a single plan–Dhirubhai Ambani
Pioneer Offer–so as to maximize the impact among subscribers and make
achieving the magical number easier. The uniformity of one plan also helps
customers grasp it easily and make them do a clear-cut comparison with other GSM
and CDMA services. This speeds up the decision-making process of the customer,
and in case a wrong decision is made, a 100-percent buyback allows subscribers
to return their phones without any deduction within three months. Thereafter, an
amount will be deducted depending upon the number of months left. Since there is
one plan, it is easier for DAEs to make a sales pitch and close the deal at the
earliest. However, in view of the high initial investment, the plan offers two
schemes–normal and finance. For the normal scheme, one has to pay around Rs
21,000, while for the finance scheme, one pays an initial amount of 3,000 and
postdated cheques of Rs 21,600.

Comment: The single plan allows better logistics management, which can
result in significant savings for Reliance.

Is It Really the Cheapest?

Let’s compare the Reliance Infocomm tariff with the recently announced
tariff of Aircel, the cellular operator based in Tamil Nadu. Aircel provides at
least three times more outgoing calls–1,200 minutes of local calls to be exact–as
against 400 minutes of free calls being offered by Reliance. What is more,
Aircel is charging Rs 325, whereas Reliance is charging Rs 400 per month. Aircel
is also offering many more freebies–zero activation, free incoming calls, zero
rentals, and free CLIP services. However, Reliance subscribers get an advantage
of making long-distance calls within the state and making interstate calls to
other Reliance subscribers.

Comments: Reliance Infocomm will have a tough time fighting Aircel in Tamil
Nadu, excluding Chennai. And, if other GSM operators also decide to take a cue
from Aircel, the going may get really tough for Reliance.

Delayed Launch

Reliance has launched the network on 27 December, 2002, and is planning to
launch services on 14 January, 2002. By end of March 2003, plans are to cover
637 towns and cities. Since the services rollout has got delayed, Reliance is
trying to entice customers by saying that subscribers can access the network for
free till March, while services would be commercial only from April 2002.

This tactic appears to be aimed at capturing those potential subscribers who
would have opted for Tata Teleservices’ CDMA services or other GSM services
because of Reliance’s delayed launch. They won’t mind using the service free
of cost for a couple of months. If that happens, Reliance will be able to start
commercial services with a large number of subscribers from day one. Meanwhile,
it also gets time to test the quality of the network and iron out interconnect
and other such issues before doing the commercial launch of the service.

Comment: The ‘free’ offer effectively offsets the potential loss
of Reliance’s image caused due to the delay in launch. Also, issues like
interconnect, SMS, and Internet may get sorted out by that time.

Prepaid Again

Reliance has always emphasized on prepaid. This can be gauged from its
cellular services launched in different states, where most of the subscribers
are on prepaid. And in some cities where Reliance is operational, there is no
postpaid option for the subscriber. Even on the WLL (M) front, the company has
opted for a prepaid model.

With Reliance IndiaMobile, Reliance has once again gone for prepaid, albeit
of a different type. The subscriber will have to either pay Rs 21,000 up-front
or an initial amount of 3,000 and 12 postdated cheques worth Rs 21,600.

Prepaid can help Reliance in two ways. One, the revenue loss, for which the
cellular industry average is estimated at 10—15 percent, can be reduced to a
minimum of 5 percent. The revenue loss is mainly due to three reasons–bad debt
on account of collection problems, fraud, and revenue leakage. Prepaid
automatically addresses all the three problems. Two it can help in funding for
netowrk expansion.

Comment: In India, even though prepaid is not known to yield high
average revenue per user (ARPU), it certainly is a proven tool for bolstering
bottomlines.

Inter SDCA Roaming

Reliance Infocomm is offering service whereby a subscriber can access
service in his home SDCA, plus four adjacent SDCAs with a small nominal value.
So, a person subscribing to the service in Delhi can roam in Sonepat, Panipat,
Ghaziabad, Noida, and Gurgaon. Using the call-forwarding facility one can
receive the call when one is out from the home SDCA and also call from these
places using a different number which is assigned to the subscriber when he
moves to the adjacent SDCA. In order to access the service from visitor SDCA,
the subscriber has to first switch the mobile phone off and then put in on and
has to register in the new SDCA whereby he is assigned a number so that he can
make a call and receive call by using call forwarding facility.

Comments: Reliance Infocomm has utilized the call forwarding facility of the
network for forwarding calls. Experts feel that there is nothing wrong with
inter SDCA roaming if one is paying charged for this facility.

In days to come, one will see fierce competition between GSM and CDMA service
providers in the country, leading to drop in prices of handsets and services in
the GSM sector. Reliance success will depend on how the DAEs market the service
and whether the launch is a smooth affair or it has initial teething problems
even after the commercial launch of CDMA service.

The CDMA handset price will be a dampening factor but in order to have 25
percent share of the market, the company should also come with short-term
schemes of say, one year, which will be beneficial in the long run. But with lot
of noises being made both on the CDMA and GSM front, it is the customer who will
benefit a lot in the long run.

Pravin Prashant

The Ins and outs of the Reliance Infocomm offer

TRAI Scheme:

l One has to pay Rs 10,500 for
the handset

l Monthly rental of Rs 200 per month
and outgoing airtime is at Rs 1.20 for 3 minutes. Incoming is free but
value-added services are chargeable at actuals

Dhirubhai Ambani Pioneer Scheme (Normal)

l Valid for three years

l One has to pay a down payment of
Rs 21,000

l Handset cost of Rs 6,600 + airtime
charge of Rs 14,400 for 3 years (airtime worth 400 minutes per month for 36
months)

l The subscriber is also entitled
for the club membership and gets a discount booklet worth Rs 100,000

Dhirubhai Ambani Pioneer Scheme (Finance)

l Valid for 3 years

l One has to pay a down payment of
Rs 3,000 (non refundable) + 12 PDCs worth Rs 1,800 (i.e airtime worth 400
minutes for 36 months). In this case, the billing is quarterly. So in total, one
has to pay Rs 3,000 + Rs 21,600 (as post dated cheque)

Rs 3,000 (non refundable) entitles the subscriber to join Pioneer Club
Membership of Reliance Infocomm. The membership entitles:

1. Free handset worth Rs 10,500
2. Discount coupon booklet worth Rs 100,000. This will entitle Infocomm
   subscribers to get discounts when they make a purchase with companies like
   HP, LG, NIIT, Amul, and others. Reliance Infocomm has put around such 7,200
   offers in the booklet.
3. GSM exchange scheme
4. Newsletter

In both Normal and Finance Scheme one gets

a) Free incoming calls

b) 400 minutes of outgoing calls per month at Rs 0.40 per minute.
Outgoing calls include local calls, long-distance calls within the state, and
interstate long-distance calls within Reliance network. The pulse rate is 15
seconds

c) Voice mail service free for 3 years

d) Unlimited SMS free for 1 year

e) Calling line identification free for 3 years

f) Internet @144 kbps (this is only for phones which support this
facility). This is valid for three months to one year

g) One can avail the service in home SDCA, plus four SDCA, through call
forwarding

h) One can download 200 games, buy and sell stock, do m-shopping and
m-banking, and others

i) Video clips, streaming video, and MP3 songs are coming soon

j) Handsets have a 12 month warranty and are covered by insurance,
absolutely free, for a period of 3 years

k) One can carry forward unused plan minutes in one month to that
quarter. At the end of the quarter, all unused minutes of the quarter lapse

l) Data connectivity time and use of value-added services, such as
voicemail retrieval included in plan minutes

If the subscriber consumes the entire 400 minutes, say, in 25 days, then all
outgoing calls are barred. If he wants that 401th minute, he has to pay around
Rs 1,000 for local, Rs 2,000 for STD, and Rs 3,000 for ISD as a security
deposit, which is adjusted against the extra calls made in that month. If the
call exceeds more than 400 minutes in a month then all calls will be charged at
Rs 1.20 for 180 seconds, which is the normal TRAI tariff for WLL (M) services.

Bills and Billing Cycle: If the usage is within 400 minutes then no bill is
generated. If it is within Rs 100 per month then quarterly bill is generated and
if it is more than Rs 100 per month then monthly bill is generated.

Exchange Scheme: The company is planning to offer exchange scheme for GSM
handsets. On the exchange of GSM handset, the GSM subscriber will get 3—6 ISD
coupons worth 50 minutes, depending upon the GSM handset that he possess. The
coupons will be valid for the US, Canada, and fixed-line phones in Western
Europe.

Exit Policy

a) To exit within three months–one has to return the handset, all the
post-dated cheques are refunded, and even Rs 3,000 Club Membership is refunded

b) After three months, one has to return the handset, Rs 3,000 is not
refunded, and Rs 40 per month multiplied by the number of unused months is
deducted

c) If the subscriber exits but does not want to return the handset then
he has to pay Rs 5,000 if he exits within the first year, Rs 3,000 if it’s the
second year, and Rs 2,000 in case of the third year