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An offer customers can’t refuse? Sistema hopes strategy connects

An offer customers can’t refuse? Sistema hopes strategy connects
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First Published: Fri, Apr 10 2009. 12 18 AM IST

Opportunity calls: Rozanov says the million minutes calling plan is what differentiates his firm from others. Madhu Kapparath / Mint
Opportunity calls: Rozanov says the million minutes calling plan is what differentiates his firm from others. Madhu Kapparath / Mint
Updated: Fri, Apr 10 2009. 12 18 AM IST
New Delhi: Telecom firm Sistema Shyam Teleservices Ltd created something of a flutter in Chennai some weeks ago when it launched a scheme that offered one million minutes calling time with a Rs499 prepaid lifetime card. The surprise element waned when customers realized that the minutes could be used only on calls on the Sistema (branded MTS) network and calls to other networks would be charged.
Opportunity calls: Rozanov says the million minutes calling plan is what differentiates his firm from others. Madhu Kapparath / Mint
Even so, says the Indian phone firm’s chief executive, Vsevolod Rozanov, who was earlier vice-president and chief financial officer of Russian cellular services company MTS, such schemes can bring in customers and keep them with a service provider if the users’ needs are taken care of and the distribution pipeline of the firm works in sync. Edited excerpts from an interview:
On Sistema’s strategy in new markets such as Tamil Nadu and Kerala:
It’s tough to invent something totally new. It’s more about execution. Basically, everyone knows what to do, and the question is whether you have a team in place. It becomes about how well you are able to execute what you know and how to do. And there is definitely a lot of experience transfer from our partners in Moscow (MTS), specifically for marketing and branding.
Otherwise, distribution is the key, creating awareness in terms of the brand and making sure that the product is available.
On what differentiates Sistema:
It is the offer (of one million minutes calling plan). This is a very good offer and one of the reasons that we expect to go above expectations. Being a greenfield player, there is a necessity to give an offer like this.
On how sticky the offer will be with customers:
Our overall market research shows that a lot of subscribers never change their operators...around 50% customers never change their operator in their life in almost all geographic and cultural regions of India. So, if you are able to attract the subscriber, then there is a very good chance that if the subscriber stays for a few years, he will stay for a longer time.
Arpus (average revenue per user) in Rajasthan, where we have more or less the same offer, are growing every month, which is extremely important. When a customer takes our connection, he or she is mostly interested in this on-net offer. And as they use the connection more and more, they start to make off-net calls and they start to receive more incoming calls. Which generates additional revenue.
Also, additions are growing by around 10% or 15% per month. From 60,000 additions a month, we are now adding around 80,000 a month.
On Arpu numbers:
It is well below the industry average, but what you should look into is the incremental industry average. Industry average is for subscribers that have been there since the beginning of the industry—more than seven years. (Incremental Arpu) is around Rs150. Our Arpus are not above this but around this. Not very different.
On funding, break-even:
That depends on the speed of launch. If we launch everything within one year, then we can be cash-positive in the next three-and-half years. At this stage, it is tough to forecast as we expect up to five players to appear soon. That might significantly deteriorate the margins and business fundamentals for the whole industry. If a bloodbath starts, then it can get even further delayed.
At this stage, we are being financed as per plan—basically from equity and loans. We have loans from Russian and Indian banks...(later) we may need to increase our debt.
On listing:
We will see how the international capital markets behave. Sooner or later, we will use this as a source of funding as well. At this stage, I cannot say anything with certainty. We will definitely do a listing, but definitely not this year and not in the first half of next year. At this stage, we see that the debt market in India is open. So, in terms of financing, I would not say that listing is critical for our success of our business.
On roll-out plan:
We are already present in Chennai. We will be present in Kolkata in the second quarter (April-June). In Delhi and Mumbai, we will be present by the end of the year. Besides these, we will be present in some other (telecom) circles also. To be on the safe side, we should be in minimum six or eight more circles by the end of this calendar year.
The rest of the circles within the first two or three quarters of the (next) calendar year.
On network technology:
We do not believe there is that much of a difference between GSM (global system for mobile communications) and CDMA (code division multiple access). Customers using CDMA technology are approximately one quarter of all. Given the size of the Indian market, this is not small at all.
We have been looking into whether we should wait until we are fully ready with CDMA data offerings or we should start building our customer base and deliver our data offers a bit later. We decided to go in for the second option. We will be coming out with the data offering closer to the end of May or June.
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First Published: Fri, Apr 10 2009. 12 18 AM IST