Virgin connects with Tata

Posted on June 6, 2007
Filed Under India Ventures, Venture News |

By Amit Agrawal

The Virgin Group recently announced a 50:50 joint venture with the Tatas in the field of mobile services “Virgin Mobile to ring in India”.

The venture has been set up to roll out a new genre of mobile service targeted at the youth segment in India. It will be interesting to watch the path this venture takes and the final offering that is dished out to the subscriber. Virgin has the reputation of being a very potent brand across the world. The brand speaks for itself and is backed by core values. Tata seems to aptly reflect the Indian “unity in diversity” paradigm when it comes to the question of business units, brands and service offerings. Tatas have always had a problem of plenty in the Telecom business and operate multiple business entities

1. Tata Teleservices Ltd – Serves mobile subscribers using CDMA technology all over India except Maharashtra
2. Tata Teleservices Maharashtra Limited – Serves mobile subscribers using CDMA technology in Maharashtra
3. Tata Indicom Enterprise Business Unit – An entity focuses on providing communication services to the enterprise sector
4. VSNL – An erstwhile government owned International Long Distance and broadband access service provider
5. VSNL International – The new face of Teleglobe, an international interconnect provider, which Tata’s acquired sometime back.

Besides the above, Tatas had a financial interest in another GSM based mobile operator Idea Cellular. Idea Cellular is the new avatar of the original venture Birla-Tata-AT&T which was christened as BATATA ( stands for Potato in Marathi, a regional language of India). The Idea stake has since been hived off to the Aditya Birla Group. Tatas also have close associations with the Dishnet Group, another provider of Telecom services in India.

Unlike its peer Reliance, which despite having many business units has a seamless customer experience, the Tata’s have taken their time to converge to “Tata Indicom” brand as the cornerstone of all their offerings. If you scratch the surface, Tatas still exist and operate as distinct business unit. For example a Tata Indicom broadband connection (powered by VSNL) may be bought at a Tata Indicom store, but cannot be serviced or renewed from there. Customers have to go back to the parent company VSNL with any add-on requests like upgrades, renewals, etc. the porridge of enterprises involved and their relationships often leave the consumer confused about whom they are dealing with.

Virgin per say does not operate any telecom network anywhere in the world. The Wikipedia article on Virgin profiles Virgin as a pureplay mobile virtual network operator which leverages the infrastructure of existing players. In fact the current regulatory framework in India does not permit MVNOs. In this case Virgin cannot thus be an independent player and has to replicate its model being used in South Africa with Cell C. A quick browse through the various Virgin mobile offerings suggests that the offering is media centric and packed with Value Added Services, with the exception of South Africa. So will another non-MVNO operation end up in similar fate? A quick look at Virgin’s South African platter suggests a pay as you use offering centered along following lines

1. Single Rate voice service
2. Reward Points for high usage
3. Voice Mail Services
4. Data Services ( MMS, WAP)

The South African platter can be considered already stale for the India market, with almost all the players (except Aircel) having an equivalent or better offering. A look at the UK site offers more. Virgin UK has innovatively combined the media offering with mobile and there are deals offering “Big Brother” packages (a UK reality show based on celebrities). The equivalent of the UK goody pack in India would cost Virgin and Tata some serious scratching of heads on the media tie-ups. Perhaps STAR would be willing to lend a helping hand (through the Tata Sky venture).

In USA, Virgin rides on as an MVNO on Sprint’s CDMA network. So Tata’s CDMA network should not present any new technology challenge for Virgin. In fact if one maps the technology plane of a telecom network with the business plane, the commoditized voice business takes place in the Telecom access and core layers. The Value added services are resident in the Service layer which is increasing getting mixed up with the Web. Today’s Telecom networks are quite open for someone smart enough to plug a web application in the service layer and quickly create new services for the end-user. That should ring a bell for the start-ups as well to try niche applications targeted at the long tail of the users. After all, a happy long tail is a loyal tail as well.

The ramifications of adding the Virgin brand to Tata’s telecom porridge would be quite interesting given how touchy Virgin can be about the usage of its brand. Virgin is more about Virgin (the brand) than about Telecom. As a Conglomerate, it has bigger interest in airlines and music than in Telecom. One would quiz why did Tatas decide to partner with Virgin and that too in the Telecom Business. Earlier this year, Tatas launched their DTH business Tata SKY in India in partnership with the STAR group. If it was a matter of leveraging the brand, Tata could have done so for their DTH business too. Media and Telecom are close cousins and in the near future one can expect Tata’s telecom businesses getting excited about biting the media pie through IPTV or MediaFlo based Mobile TV offerings. Interestingly this falls right in the currently niche area of Value added services where the proposed offerings from TTSL – Virgin JV are proposed to be positioned. Perhaps it is a strategic oversight by Tatas or fallout of the scattered business structure.

There is another angle to this deal. It totally side-steps the trend in telecom business models emerging in India today. Every GSM operator in India is outsourcing its network operations and capacity enhancements to equipment vendors under multi million dollar managed services contracts. Nokia selected for 5-year Managed Services deal with Hutchison Essar Limited , Ericsson and Bharti sign managed capacity expansion contract for rural . These moves are aimed at retaining only the customer acquisition & management and financial functions within the organization and outsourcing the rest to the vendors. However Tatas have shied away from doing this. Instead they have buckled the trend and brought in a partner which is strong in branding. The value it will bring in a market which has the lowest ARPUs and ever declining call rates remains to be seen.

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One Response to “Virgin connects with Tata”

  1. indya on July 5th, 2007 9:47 am

    Thanks for sharing your links on BestOfindya. You have a great blog.

    Vote for this article at http://www.bestofindya.com/news/story.php?title=Virgin_connects_with_Tata

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