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Case Study Mahanagar Telephone Nigam Limited Marketing Essay

Paper Type: Free Essay Subject: Marketing
Wordcount: 2796 words Published: 1st Jan 2015

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Mahanagar Telephone Nigam Limited is an Indian Government-owned telephone service provider in the metro cities of Mumbai and New Delhi in India. The company was a monopoly until 1992, when the telecom sector was opened to other service providers.

MTNL provides fixed line telephones, cellular connection of both GSM – Dolphin(Postpaid) and Trump (prepaid) and WLL (CDMA) – Garuda-FW And Garuda-Mobile and internet services through dialup and DSL – Broadband internet TriBand. MTNL has also started Games on demand, video on demand and IPTV services in India through its Broadband Internet service called Triband. Phone numbers belonging to MTNL start with the prefix 2 infixed line telephones and WLL & in GSM Mobile services start from 901x/ 9868/69 / 9968/69. MTNL also provides other services such as VPN,Internet Telephony- VOIP and leased lines through BSNL and VSNL.

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MTNL has been actively providing connections in both Mumbai and New Delhi areas and the efficiency of the company has drastically improved from the days when one had to wait years to get a phone connection to now when one can get a connection in even hours. Pre-activated Mobile connections are available at many places across both Metros. MTNL has also unveiled very cost-effective Broadband Internet access plans (TriBand) targeted at homes and small businesses. At present MTNL enjoys the largest of the market share of ISP services in Mumbai and Delhi.

India’s First 3G Mobile Service By MTNL

MTNL started 3G services in India under the name of “MTNL 3G Jadoo” Services offered include Video call, Mobile TV and Mobile Broadband with high speed data connectivity up to 2 Mbit/s speed from 11th December 2008, getting India on the 3G map of the world. MTNL plans to offer 3G services across India by mid-2009. After that MTNL Mobile users would be able to surf the internet with speeds up to 2 Mbit/s on their smart phones. MTNL also provides data cards for surfing internet on the PC and Laptop at 3.6 Mbps. MTNL will be installing 15 lakh 3G lines in the first phase of its 3G roll-out in Mumbai and Delhi (which currently have 40 lakh existing mobile lines).

Various risks to MTNL

MARKET RISKS

The telecommunications market in the cities of Delhi and Mumbai are among the most competitive markets. MTNL faces intense competition from the other mobile operators and the basic service operators. This has led to an increased pressure on margins due to reducing tariffs and also on the customer retention and acquisition. The Average revenue per user is also going down. With new operators coming in Delhi and Mumbai, such competitive pressures are likely to increase further, putting a further strain on the margins. Recently DOT has issued LOIs to a number of new players which will lead to increased competition to market share. MTNL is confirmed only in two cities i.e. Delhi and Mumbai, therefore MTNL is not able to expand its telecom services beyond its area of jurisdiction.

POLICY AND REGULATORY RISKS

The telecommunications sector in India is one of the highest taxed sector. The high level of license fee is a big strain on the finances of the company. This is paid over and above all other taxes and duties which are levied on all other businesses. Regulatory policies cannot be foretold and may at time, be such as to affect the financials of the company.

MANPOWER RISKS

There is a huge workforce and approximately 32% of revenue is spent on staff. In comparison of the staff costs of other operators, it is about 7% of the revenues. This is a major risk which the company faces, as it has little flexibility in the matter and may have to continue to carry the cost. It may in fact become even higher as wage negotiations are now due as per the earlier wage agreement which was for 10 years. Considering the tremendous growth of private sector and opportunities that have become available and availability of employment in telecom & IT sectors, retention of suitable manpower is a big challenge. There is 20% attrition rate among the young executives recruited for specialized jobs.

OUTSTANDING DUES

Over the years, the amount owned to MTNL by its customers had been increasing and accumulated significantly. Realisation of dues from customers has become even more difficult in the increasingly competitive telecom market as the customers can close the connection and take services of other operators. Efforts are being made to reduce the outstanding and some success has been achieved in bringing down total outstanding in a multi operator environment, this risk remains.

Poor operating performance continues

Mahanagar Telephone Nigam Limited (MTNL) revenues and earnings continued to slide in the quarter.

The fixed-line segment continues to bleed: MTNL’s wireline customers decreased by 1.5% qoq to 3.75 mn. Despite the bundling of services, the Company is unable to stem the drop in ARPU and loss in subscribers. Consequently, wireline revenue dropped 3.2% qoq to Rs. 7.6 mn.

Disappointing performance in the cellular segment: Mobile revenue also fell by 3.0% qoq to Rs. 2.1 bn on account of sliding ARPUs. For pre-paid customers, ARPU continued to slide for the Company with a drop of around 13%. Moreover, the Company’s subscriber addition grew only by 6.1% qoq, compared with the addition of ~10% qoq for the overall Industry.

Margins continue to remain under stress: The Company EBITDA margins dropped by substantial 500 bps qoq on account of a rise in staff cost post wage revision. We continue to believe that the Company’s margins will drop around 15% for FY09 owing to a loss of high ARPU fixed-line business and growth in low ARPU mobile business. Besides, huge work force will continue to drag the margins southwards.

Competitor Risk: Tata Teleservices Limited and Reliance Infocom Limited are currently competing with MTNL in the market for basic services in both Mumbai and Delhi, and Bharti Tele-Ventures Limited is also competing with mtnl in the basic services market in Delhi. All of these companies already have significant telecommunications infrastructure in Delhi and Mumbai, including, with respect to Tata Teleservices and Reliance Infocom, low-cost CDMA mobile and fixed wireless technology. With approximately 62.52% of their call units having come from approximately 18.39% of our access lines in service, they are particularly vulnerable to losing market share if these or other new operators aggressively target their largest subscribers. Some of their largest customers have already migrated to other basic service operators.

Various risks faced by Telecom sector

Regulation and compliance :  The regulatory authority in India has delayed the 3G auction and sets up new guidelines every now and then. It has also given 3G license for BSNL without giving it to other providers. Airtel and Vodafone which has launched iPhone 3G phone were left in the dark with 3G phones without any 3G service.

Entry of 4-5 players  : Licenses were granted to 6 new players. Unitech, Sistema, etc.. Sitema has started its operations under the name of MTS by providing 1 million minutes free. New players and offers like these would seriously dent the expansion plans of established players. All the players should think out of the box and come up with IDEAS. Next thing would be consolidation in the industry which is already happening in the telecom tower business.

Capital for expansion : This is the biggest criteria for smaller players. While there are no smaller players, as the new players are backed up by some heavy-weights, expansion is still tough. This is where sharing infrastructure comes into picture. Indus Towers is one such example. BSNL has recently announced about leasing its towers. Initiatives like these will help both the older and newer players to penetrate into new markets.

Attracting and managing talent and intellectual capital : This is a tough one. With fierce competition comes the talent poaching. Companies should have some talent retention measures in place. Airtel has restructured its business into 9 verticals to retain talent. Not every company can do the same but, that is one option.

Management of strategic partnerships : Providing free SMS’s or call rates at 40 paise per minute are no longer the differentiators. It is the value Added services which matter. There were bunch of partnerships which happened in the last 2 months. AskLaila- Airtel partnership for local search, Amar Chitra Katha – Vodafone, IDEA and Bharat Matrimony have tied up for VAS. BSNL has recently tied up with Hungama portal for music and game downloads. Strategic partnerships like these should be nurtured and maintained.

Inappropriate processes and systems to support exponential business growth experienced over past 4-5 years : This is where investing in IT and the right tools is crucial. These are the operations that should be outsourcing so that the telecom companies can focus on their core areas. Indian telecom companies should outsource aggressively and focus on expanding their network and services.

Forecasting returns from technology and infrastructure investments

Privacy and security risks

Contain and reduce costs

Manage consolidation and mergers & acquisition : This would tie back to point #2 of entry of new players and a possible consolidation in the telecom business and the tower business.

Corporate social responsibility and sustainability : With the Satyam scam jolting India Inc, this would be high on the radar for the companies.

Lack of protection for digital intellectual property : This could be next for Indian telecom. Too soon but might take 2-3 years for this to become a risk

Concentration of equipment manufacturers : Sourcing from a single supplier or a bunch of supplier could lead to great dependency. Satyam scam has just shown the world how dependent one can become on the outsourcing services. Same case will be applicable to the telecom companies. For example, Reliance sources most of its equipment from ZTE – a Chinese company. This is a potential risk.

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Investment risks : Investment is necessary for improving telecom sector performance. And investment risk is the primary determinant in making investment decisions. Investors consider/face risks related to three broad environments: a) macro-level country risk, associated with factors that often affect the entire economy such as inflation, foreign exchange fluctuations, and political stability; b) market or commercial risk, associated with factors related to demand and supply, availability of substitute products, and the performance of competitors; and c) regulatory risk, emanating from government action, including but not limited to, actions of the regulatory agency with authority over the telecom sector.

Risk Management techniques used by MTNL

Risk is the ultimate four-letter word of business, investment and government. Entrepreneurs and political leaders understand as well as anyone that if nothing is ventured, nothing can be gained, and that therefore risk can never be entirely eliminated. Nonetheless, the effort to minimize, or at least manage risk, has become a major focus of most corporate entities, and it’s standard practice for public companies to disclose their operating risks each quarter in their public filings.

The first, avoidance, can be as simple as not engaging in activity that produces the risk, but this not only eliminates risk but potential benefits as well. Risk reduction through concrete steps is far more common, and the specifics will be related to the type of business and risk involved. Risk transference is also highly beneficial as when an available option; it involves outsourcing the problem to another entity such as through the purchase of insurance. Finally, risk retention is inevitable in some cases where the risks are either unlikely, or the costs of mitigating or transferring the risk are prohibitive.

Instead of divesting a stake as a one-shot, revenue-raising deal, induct a strong partner to build services and revenues.

Serve user needs, instead of offering ‘products’ with some internal geographic or technological definitions that are not easily understood.

Rationalize services like EVDO cards (broadband data cards) that are not customer-centric, because if they work in the rest of the country, they don’t in Delhi and Mumbai and vice versa.

MTNL could go for collaborative data-streaming with 2.4 Mbps EVDO cards usable everywhere, offered with a service level and style that can only come with a hands-on partner changing the off-putting way MTNL treat customers. 

Get politicians out of procurement, and induct technology like wireless corDECT at 512 Kbps for rural areas if appropriate, even if it is ‘old’ and not state-of-the-art, instead of waiting for years for alternatives that aren’t there of 3G or LTE (Long-Term Evolution or 4G), and will cost much more.

Move up to 3G/LTE after some years of generating profits.

Work with India’s technology companies to build local equivalents of Hawaii and ZTE, with India’s assured markets. (This requires policies far beyond the ambit of the DOT, as in the way China has nurtured Hawaii/ZTE for years.)

Post effects of application of risk management techniques.

Minister of State for Communications and Information Technology, Jyotiraditya M. Scindia announced that the market share of state owned telecom biggies Mahanagar Telephone Nigam (MTNL) and Bharat Sanchar Nigam (BSNL) had decreased. According to agency sources, while landline connections of BSNL and MTNL command a market share of  78.82% and 9.32% respectively, the mobile connections of both the Public Sector Undertaking stand at 14.14%(BSNL) and 1.28% (MTNL) respectively. Thus the combined landline connections of these two PSU`s stand at 88.14% while the mobile connections stand at 15.42% . Sources disclosed that the market share of MTNL and BSNL had decreased due to the  surrendering of excess landline phones and preference for mobile phones and customer`s preference for mobile and landline phones from different service providers.

In case of MTNL, to be precise sources said that there were capacity constraints in its GSM mobile network due to non-commissioning of 75,000 million lines each in Delhi and Mumbai by the vendors. Sources also added that during the past two years, sufficient capacity in GSM mobile equipment was sub-judiced and there was delay in supply of equipments.

Following TRAI permission for basic operators to provide limited mobility, MTNL launched its Wireless in Local Loop (WiLL) service branded ‘Garuda’ in December 2001. By pricing monthly rentals and deposits competitively, MTNL has increased the attractiveness of the service. While incoming calls are free of cost, outgoing calls are charged at the rate of Rs 1.20 per minute, which is also the ruling basic telephony charge. There are two options. One, on a security deposit of Rs 5,000, MTNL would provide the instrument and on the surrender of the instrument, the security deposit would be refunded. The other option is for the subscriber to buy the handset from the market with no security deposit. The handsets are already available in the market and one can expect rates to fall in the coming years. The monthly rental at Rs 450 is the same for both the options.

But the key cause of concern is the earnings prospects. Since Mumbai and Delhi are cities with high tele-density, subscriber base growth is expected to be on the lower side. While tariff restructuring has increased paid-minute calls, it is not commensurate with the fall in tariffs. Also, in such a highly competitive environment, pricing is not a sustainable differentiating factor. As customers become more and more sophisticated, telecom majors will have to improve service levels and bundle value-adds. MTNL’s future prospects rely on its disinvestment. The new partner could bring in the technical expertise and show the way for the company. But even here, there is a difficulty. With more than 60,000 employees, which the management assumes as its biggest asset (“The human strength is the greatest strength for MTN, one has to be cautious. To increase attractiveness, the government might decide to prune workforce to a manageable level before disinvestment.

 

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