Mumbai: Consumer electronics maker Videocon group, which also has interests in oil and gas, is set to soon enter two new, albeit crowded and highly competitive, businesses. The group will launch its direct-to-home, or DTH, television service on 27 April and a wireless phone service in August, group chairman Venugopal Dhoot said.
The group will enter the pan-India DTH business through its recently registered subsidiary Bharat Broadcasting Corporation Pvt. Ltd and launch mobile phone services through its majority owned company, Datacom Solutions Pvt. Ltd.
Confident posture: Chairman Venugopal Dhoot says the telecom business is ‘synergistic’ with Videocon’s core businesses. Ashesh Shah / Mint
The mobile phone business will initially be launched in the southern parts of India and expanded across the country over the next 12 months, Dhoot said in an interview.
The DTH service space is currently served by six well-entrenched companies with deep pockets. These include Reliance Big TV, Dish TV, Sun TV, Tata Sky, Bharti AirtelLtd and state-run Doordarshan. DTH is an investment-intensive business and even those companies that have been in it for more than two years, such as Dish TV, Tata Sky and Doordarshan, have not been able to make profits as yet.
Wireless telephony service, says Dhoot, is “synergistic” with the Videocon group’s core businesses.
Videocon is one of the country’s bigger consumer electronics makers, with a strong presence in the television market. Videocon Industries Ltd, the flagship group company that also houses the consumer electronics business, earned revenues of Rs9,754 crore in 2008-09 and a net profit of Rs854 crore. The company is likely to face fierce competition in the wireless services segment, too. By the time it launches its mobile phone services, the major worry for Dhoot will be whether the market has been already carved up by incumbents and other new entrants. The group has invested Rs300 crore and committed around Rs1,500 crore to the business.
There are currently 389 million mobile subscribers in India, according to a 2 April research report on the Indian telecom sector by ICICI Securities Ltd.
The GSM, as the commonly used global system for mobile technology standard is known, industry in India added 92.5 million subscribers in fiscal 2008-2009. Indian GSM operators added 10.8 million subscribers in March alone, against 9.3 million in February. These numbers don’t include Reliance Communications Ltd, which doesn’t disclose separate numbers for its GSM and CDMA, or code division multiple access, services.
Reliance Communications launched its GSM services earlier this year, while Tata Teleservices Ltd is poised to do so. Idea Cellular Ltd and Aircel Ltd have meanwhile already rolled out GSM services in some circles.
The ICICI Securities report says that “the Indian telecom sector is at a critical point as net adds approach peak and (the) competition intensifies. We expect a tussle between incumbents and new entrants, GSM and CDMA services and for 3G licences”. Videocon’s big opportunity could lie there.
The report further says, “…rural India offers telcos a new leg of growth as they extend coverage to hinterlands.” It estimates that by the financial year ending 2015, rural net adds will contribute 45% to total net adds.
Dhoot is confident that he can overcome barriers to entry and that he isn’t late to the telecom party. “By the first year, we will have a pan-India presence,” he says.
Reeling off statistics, he further says that there are 280 million mobile users in India, while the country’s population is pegged to hit 1.2 billion over the next five years.
He says even if 50% of the projected population use a mobile, the market will swell to 600 million. “One-sixth of the Indian mobile phone users will have two mobile phones, which means the mobile users tribe could further expand” to 700 million.
Even if Videocon gets a 10% market share of this estimated 700 million subscriber base and they spend Rs100 per month on talk time, calculates Dhoot, his turnover will cross Rs840 crore annually. “Indians like talking. So it’s a big business,” he says.
Dhoot’s confidence comes from what he says is his knowledge of the Indian market. “I know the business and the Indian market. For 25 years, this is my business... to approach customers and give new ideas. It is synergistic to Videocon and we have the dealer and consumer knowledge.”
“We are experts in understanding the Indian consumer,” says Dhoot. “We are reaching 1.2 crore Indian homes (through the existing business of selling consumer electronics products). One home will have five mobile phone users then that is six crore of our consumers. People know this brand.”
However, the ICICI Securities report doesn’t seem too optimistic. “The entry of new players,” it says, “will lead to 10 players in most markets, limiting the scope of achieving incremental market share of more than 10% on a sustained basis.”
It also adds that new entrants to the so-called 2-G mobile market could take up to six years to generate positive free cash flow.
“They lost a big opportunity,” says a former official of Videocon’s telecom business, who quit because of his disappointment over an ownership tussle between Dhoot and Mahendra Nahata of Himachal Futuristic Communications Ltd. “We planned the launch on 15 December 2008 ahead of the rest of the new entrants.”
Videocon owns a 64% stake in Datacom, while Nahata holds the rest. A person familiar with the negotiations said Videocon’s stake will increase as and when it brings in more equity. But Dhoot declined to talk about it.
“We had some differences. Now it has been sorted out. There is no change in shareholding structure as of now.”
But the delay meant that Videocon lost the first-mover advantage among new GSM telephone operators.
According to the ICICI Securities report, the share of communication spending for developing countries is likely to be higher and the current telecom spending as a percentage of per capita income for India still suggests huge room for growth.
Moreover, many developing countries with similar or lower per capita income have achieved higher mobile penetration than India, indicating that potential remains for mobile subscriber growth in India.
Quoting a McKinsey and Co. report on the Indian consumer market, the ICICI report adds that the average household consumption on communications in India is estimated to rise from 2% to 3% by fiscal 2015 and to 6% by fiscal 2025.