November 3, 2001

Developing Marketing Strategy for RailTel Corporation of India

Ltd

Organisation GuideShri Akhil AgrawalOfficer on Special Duty,RailTel Corporation of India LimitedRailway Board, New Delhi

Faculty GuideProf. A. P. Arora

Professor MarketingMDI, Gurgaon

Dissertation Presentation

by

Sanjai Kumar

RailTel: AN INTRODUCTION

• Modernisation of the Railways, operations, and signalling & telecom systems;

• This will help improve safety, make the connectivity available for its operational requirement in PRS, FOIS etc.;

• Standardisation of processes, procedures and equipment through a common backbone (as opposed to the different LD channels used today);

• Supplement the national telecom infrastructure, especially in rural and backward parts of the country located in the vicinity of the railway tracks;

• Generate revenues for railway development and programmes for safety enhancement.

WHY?

RailTel has RoW:

� 63,720 km of network that encompasses all regions in India ;� It covers all high traffic locations (~7,000 Railway stations);� It passes through or touches major central business districts (CBDs) of cities/towns.

Existing telecom network: Existing 6-24 fibres network of 5,054 km of OFC network; ~ 4300 kms of Digital Microwave network;

Telecom Skills: In house resources with experience in building OFC network.

RailTel: AN INTRODUCTION (contd..)

HOW?

FOCUS OF STUDY To Develop Marketing Strategy of RailTel Corporation of India Limited

It includes:

• Segmentation;

• Targeting;

• Positioning.

NEED FOR STUDY

• Marketing Strategy: An Important CSF for business to start;

• IR passing under very crucial stage;

• One year has passed after the McKinsey had suggested “business plan”.

USEFULNESS OF STUDY

It is supposed

• to give spectrum of alternatives to RailTel;

• to find out various market segments;

• to screen various technological alternatives;

• to have a perspective of “services marketing”.

SCOPE & LIMITATIONS

• Limited time of three months;

• Limited Access to Resources;

• B2B, Services Marketing, Telecom;

• Not selected any JV Partner.

LITERATURE SURVEY

• Marketing of Services;

• Marketing in Telecom;

• Right of Way;

• Different Technologies of Networking;

PROJECT OBJECTIVE

• Understanding the business objective;

• Understanding the market;

• Understanding the perspective of RoW owner;

• Developing the Marketing Program for RailTel.

DATA ANALYSIS

• Qualitative Analyses using MOA, PEST, SWOT, Porter etc.

PROJECT DESIGN & METHODOLOGY

• No Hypothesis;

• Exploratory Study based on secondary data, primary data collected

from open ended interviews;

DATA SOURCES & COLLECTION• Newspapers/ Websites;

• Journals / Magazines / Reports;

• Books.

• Open-ended Interviews: TRAI/DoT officials, Customers.

BOUQUET OF COMMUNICATION SRVICES

Communication Services

Consumers Consumers

Cellular

NLDO

ISP/Data

Basic

IP1IP2

ILD

INDIAN TELECOM MARKET

ECONOMIC GROWTH

• 7% CAGR in GDP between 2000-2005;

• Inflation in check, interest rates stable.

DEREGULATION

• Government stance towards deregulation and liberalisation of telecom sector is positive;

• Highly pro-liberalisation National Telecom Policy 1999;

• Strengthening of TRAI.

GOVT. OF INDIA THRUST

• Recognises social and economic imperatives;

• Sustain the Indian IT story;

• “Back office of the world”

Telecom Value Chain

TELECOM VALUE CHAIN

Suppliers of various inputs RoW, equipment etc.Infrastructure Providers Fixed-line services, Domestic long-distance, International long-distance, Mobile cellular, VSAT servicesInternet services and Value-added services like IDCs (Internet Data Centres), portals and call centres.And the list is not exhaustive……..

includes:

Right of way owners

Infrastructure Providers Category I, they can sell or lease the right of way and or dark fiber, ducts etc.

Infrastructure Providers Category II, can go further up in the value chain and sell the end to end connectivity for the use of other service providers like ISPs, Cellular operators etc.

Further up in the value chain The RailTel or similar ones can themselves become service providers like cellular, ISPs, Basic Service providers, DLD operators etc.

Even further up, there are Application Services Providers, Web Hosting, Call Centers, Data Centers etc.

TELECOM SERVICES MARKET

• Internet Services

« Drastic growth in this segment (~ more than 7-8 times that in 2000)

« About to grow to more than Rs. 50 bn by year 2005

• Domestic Long Distance Services

« Even conservative estimates expect a growth of CAGR of 12%.

« Despite the DLD rates are expected to decline by 31% in 5 years.

« This segment is characterised

• Cellular Services

« Current penetration is 0.45%, as opposed to teledensity of 3.5%.

« Revenue to rise by about 4 times during 5 years.

BANDWIDTH MARKET

The demand for backbone bandwidth (the different services segments) Rs. 8.01 bn in 2000 Rs. 31.45 bn in 2005.

(Largely captive to or catered by BSNL).

The segment-wise distribution is:

•Cellular services

Rs. 0.43 bn in 2000 Rs. 1.81 bn in 2005.

•DLD Services (including both basic intra-circle and NLDO inter-circle)

Rs. 4.72 bn in 2000 Rs. 6.8 bn in 2005.

•ISP/data services: ( Includes Internet access, VPN, Corporate Leased lines)

Rs. 2.86 bn in 2000 Rs. 22.84 bn in 2005.

Source: Detailed Project Report on RailTel 2001

Service BW (Gbps)

Demand in 2000

BW (Gbps)

demand in 2005(E)

CA GR

ISP 3 142 116%

NLDO 4 13 28%

Basic intra circle LD 10 23 17%

Cellu lar 1 8 52%

Total 18 186 59%

Source: Detailed Project Report on RailTel, 2001

BANDWIDTH DEMAND

DRIVERS FOR BANDWIDTH

• Technology

• Network Trends

• Regulation and Privatisation

• Economics of Supply

• Growth Inhibitors

GROWTH IN WAITING

• PC market likely to increase PC penetration due to decline in price of PCs;

• Advent of Simputer (below Rs. 10,000);

• Overall market recession is temporary event.

Construction of OFC enabled applications

Demand for Bandwidth consumingIncreasing demand

for Bandwidth

Falling Prices

Accelerating Growth Spiral

INFRASTRUCTURE PROVIDERS

IP-I (can provide dark fibre, Right of Way, duct space and towers on lease / rent out / sale basis)

No license required;

No restriction on the level of foreign equity;

No restriction on number of IPs;

No entry fee or license fee payable.

IP-II (lease / rent out / sell end-to-end bandwidth i.e. digital transmission capacity capable to carry a message)

No restriction on number of IPs;

No entry fee;

License fee in the form of revenue share;

License initially for a period of 20 years, extendable by 10 years;

Total foreign/ Non-Resident Indian (NRI)/ Overseas Corporate Bodies (OCB)/ International funding agencies equity limited to 49%;

The applicant company to make its own arrangements of Right of Way.

INFRASTRUCTURE PROVIDERS

An Estimate of Demand Supply Gap(in Mbps)

Year Demand supply Poverty1995 NA NA 69%2000 4 Gbps 420 Mbps 88%2001 5.4 Gbps 570 Mbps NA2003 24 Gbps 2 Gbps 92%2005 48.6 Gbps 4.5 Gbps NA

Source:http://www.coolavenues.com/cool_res/system/bandwidth.htm

Gap Analysis in Current Bandwidth Available and Needed in Selected Indian Cities (in Mbps)

City Available BW Required BW Gap

Mumbai 115 55 48%Delhi 56 35 62.5%Chennai 48.5 75 155%Bangalore 48 60 125%Kolkata 16.6 12 72%Pune 15 27.5 183%Ernakulam 2 12 600%

Source: NASSCOM-McKinsey Survey, July 2000, The Economic Times

BANDWIDTH MARKET OUTLOOK

• Unlimited entry for ISP, IP2, IP1 and NLD markets;

• Resulting in intense competition in shot term as players scramble to set up networks;

• Possibility of high churn and hence marginal cost pricing strategies;

• Resulting in decreased margins for plain infrastructure providers;

• Resulting in increased margin for full service providers in near term

PEST ANALYSIS

• POLITICAL

Govt at centre is committed to liberalisation

Fairly stable govt.

Telecom declared as infrastructure sector

Tax holidays for investors in infrastructure sector projects

Convergence bill in the lower house for consideration

•EOCONOMICAL

… Overall market conditions in telecom sector (developed countries) not good;

… Market potential in India is still enormous for growth;

… Expenditure on telecom sector is merely 1.2% of GDP;

… Indian economy is characterised by

¿ GDP growth rate of ~ 6%;

¿ Healthy saving rate of ~ 22% of GDP;

¿ Inflation contained (presently ~ 6%);

¿ Comfortable FOREX.

PEST ANALYSIS

•SOCIOLOGICAL

§ 67% of population lives in rural & remote areas;

§ Only 3.5% teledensity (In rural & remote - only 0.6%);

§ Cellular penetration is even poorer at 0.45%;

PEST ANALYSIS

•TECHNOLOGICAL

# Technological innovations at very fast pace;

# Technology helping to create BW hungry applications;

# Technology enabling convergence of data, voice &multimedia;

# Technologies such as DWDM, VOIP, etc. threaten to change the market structure.

SWOT Analysis of BSNL

STRENGTHS

• Largest and incumbent telecom outfit;

• Very strong and big infrastructure;

• Strong Cash reserves;

• Old experience in telecom services;

• largest subscriber base;

• Good reserve of technical skills.THREATS

• Gateways open to private operators;

• New players with foreign collaborators;

• Increased customer awareness toward

services provided;

• Bandwidth becoming commodity.

WEAKNESSES

• Laxity arising from monopolistic conditions;

• Attitude toward customers;

• Delays in decision making;

• Not expert in marketing.

OPPORTUNITIES• On full Value Chain;

• High growth in Telecom market;

• Empowered to venture in any area of communication services;.

SWOT Analysis of Reliance

STRENGTHS

• Huge cash flows from other firms;

• Political and bureaucratic clout;

• Core competencies in new ventures;

• Ability to raise capital;

• Has developed 10,000 km OFC

backbone.

THREATS

• It is following full service model;

• Telecom is different from petrochemicals;

• Regulators may force to split;

WEAKNESSES

• No experience in telecom services;

• Not expert in marketing (like brand,

customer service and tech innovation);

OPPORTUNITIES

• High growth in telecom market;

• On complete value chain;

SWOT Analysis of Bharti

STRENGTHS

• Marketing skills in telecom market;

• Operates in entire portfolio;

• Joint venture with SingTel;

• Basic operator in MP (strategic posi);

• Getting expertise in M & A

THREATS

• It is operating with full service model;

• Managing a conglomerate may not be

easy task;

WEAKNESSES

• No significant weaknesses

OPPORTUNITIES

• On complete value chain;

• To get into markets abroad by

roping in with its MNC partners;

SWOT Analysis of PGCIL

STRENGTHS

• RoW;

• Connecting about 56 cities and towns;

• It has got IP II license;

• Project got funded by WB;

• Already having some network.

THREATS

• Chances of getting leased out to big

players;

• Major competition from big guns;

WEAKNESSES

• Lacks marketing skills;

• Positioning in only IP market;

• Not covering CBDs;

OPPORTUNITIES

• High growth in BW market;

• Opprotunities in some other value

added services;

SWOT Analysis of GAIL

STRENGTHS

• RoW;

• Obtained the license for IP II;

• Connecting major cities and town in

western parts;

• MoU with PGCIL;

THREATS

• Similar to PGCIL

WEAKNESSES

• Lacks marketing skils;

• Positioned in IP II market only;

• Does not have wide coverage of town

through CBDs..

OPPORTUNITIES

• Similar to PGCIL.

SWOT Analysis of RailTel

STRENGTHS

• Extensive RoW;

• Existing Telecom Network;

• Strong promoter

• Existing telecom skills

THREATS

• Competition heating up;

• Declining realisations from pure BW business;

WEAKNESSES• Financing;

• Marketing;

• Technical.

• Slow Decision Making

• No direct accountability

OPPORTUNITIES

• High growth in domestic telecom market;

• Possibility of entering in Value Added Services;

• Improved IR communication system (for IR).

PORTER ANALYSISMARKET: BW market in India

PRODUCT: End-to-end connectivity using OFC backbone

• Barriers to entry (LOW)

Private sector participation permitted;

No license fee (to be taken in the form of revenue sharing);

RoW still a big barrier, but financial muscle can dwarf it, moreover deregulation is continuously reducing it;

Capital intensive;

No significant barriers due to learning curve;

Differentiation is presently not a big barrier;

No established distribution channels.

•Bargaining Power of Suppliers (Medium/High)

Equipment suppliers for creating end-to-end connectivity do not seem to have substantial power;

Software suppliers do not have significant bargaining power;

Network Integrators are not sufficiently capable, so whosoever are there wield power;

RoW suppliers have sufficiently high bargaining power;

Cable manufacturers wield substantial power;

Cable laying and construction cos. do not have much;

Investors & venture capitalists are easily available.

PORTER ANALYSIS

•Bargaining Power of Buyers (High)

Rising competitive environment have extended substantial power;

Buyer segment includes B2B type corporate customers or other services providers, therefore are not the ignorant customers. This segment is supposed to have very high bargaining power;

Some of them are establishing their own regional backbones, so are likely to have high bargaining power vis-à-vis pure IP players;

However, the switching cost will be too high, until the time BW exchanges have not come into existence;

PORTER ANALYSIS

PORTER ANALYSIS• Threat of Substitutes (High)

The new emerging technologies like DWDM with in the OFC networking technology;

Other technologies of communication like VOIP, DSL, etc. which will make the use of BW more efficient;

Other different methods of providing end-to-end connectivity like DMW, Satellite, VSAT, ISDN, DSL etc.;

However, the switching cost will be too high, until the time BW exchanges have not come into existence;

Complementators

The govt as regulator is likely to intensify the competition and is likely play role of most important complementator

The other ones are the investors and the financial institutions.

INTRA INDUSTRY RIVALRY

• BSNL:

• An erstwhile monopolist and big giant;

• Very strong infrastructure.

•RELIANCE:

• Laying of nationwide network, and building comprehensive infrastructure;

• Has financing support;

• Has project implementation skills.

• BHARTI:• Extensive coverage of MP, and proposes to leverage existing ISP, cellular, and basic services;

• Has domain knowledge;

• Has financing support.

PORTER ANALYSIS

• PGCIL:

• A RoW owner in Airway easements;

• It has already taken the IP II license and started activities.

• GAIL:• Utilising existing RoW along its pipelines;

• It has also taken the IP II license and started activities.

INTRA INDUSTRY RIVALRYPORTER ANALYSIS

THREAT OF NEW ENTRANTSLowRight of Way owners like RailTel, PGCIL,GAIL, Energy companies

BARGAINING POWER OF SUPPLIERSLow or medium due to availability of large number of suppliers;Slightly higher for RoW owners, but likely to decline after convergence bill gets passed

BARGAINING POWER OF BUYERSHigh due to availability of new service providers; Low switching costs & undifferentiated product;TRAI committed to increase the competition

THREAT OF SUBSITUTESHighThese substitutes are not exactly the substitutes, but they will reduce the demand for bandwidth, as they are not BW hungry applications but making utilisation of BW more efficient.

VOIP, Internet TelephonyDWDM

The other substitutes are the different technologies. For example, VSAT, satelite Technology, Digital Microwave systems, Cable modems, xDSL technologies

INTRAINDUSTRY RIVALRY:

High;BSNL, Reliance, Bharti are main

national players;Other regional players include

BSES, Tata Power, BPL Innovision, Hughes, Shyam Telecom, HFCL etc. Regional players also include some

regional SEBs.There are some early dropouts like

Enron, WorldTel, Spectranet.Some RoW owners like RailTel,

PGCIL, GAIL.

CONCLUSION There is likelihood for very high competition in the the BW industry;

The bargaining power of various stakeholders is worth mentioning and can not be ignored;

RailTel being a RoW owner still can take advantage from its position in the analysis

PORTER ANALYSIS

SEGMENTATION

The various market segments are

» IP I

» IP II

» DLD

» ILD

» Cellular

» Basic

» ISP/Data

The various customer segments are

$ Corporate customers / Services

Providers

$ Retail customers / Household

customers

Customer Segments1st Tier

division

2nd Tier

division Corporate/ Business Residential/ Consumer

Wholesale Cellular Organisations, which need cellular

connections for its business operations,

like for its sales people.

NA

Basic Organisations, which need telephone

connections for its business operations,

like for its off ice, EPBX, FAX.

NA

NLDO All Basic Services Operators, Leased

lines for business groups, Cellular

Operators, ISP/Data service providers.

NA

ISP/Data Corporate businesses for its business

operations, VPN users

NA

Retail Cellular Like in the w holesale segment Retail Customers

Basic Like in the w holesale segment Retail Customers

NLDO Leased lines on the demand basis,

Managed bandw idth.

NA

ISP/Data Like in the w holesale segment Retail Customers

Bandw idth IP II All NLDOs, Basic Service Operators,

ISPs, Cellular operators, Corporate

customers ( for leased lines, or managed

bandw idth, collocation etc)

NA

Services

Segments

Infrastructure IP I Virtually non existent, although

theoretically almost all are the customers

NA

Customer Segments1st Tier

division

2nd Tier

division Corporate/ Business Residential/ Consumer

Wholesale Cellular NA

Basic NA

NLDO NA

ISP/Data NA

Retail Cellular

Basic

NLDO NA

ISP/Data

Bandw idth IP II NA

Services

Segments

Infrastructure IP I NA

Segment, which the RailTel may target

Segment, which the RailTel should not target

NA Segment does not exist

TARGETING

Infrastructure Provider

Category II

POSITIONING ¶ Reliability of Services

¶ Quality of Service

¶ Punctuality

¶ Zero Down Time

¶ Flexibility

¶ Use of “state-of-the-art” technology

¶ Value for Money

¶ Focus on the customer

PRODUCT CORE PRODUCT: end-to-end-connectivity

End-to-end connectivity

Managed Bandwidth

Collocation Facilities

Internet Data Centre

Web Hosting

Moving up in the value chain

Product Configuration & Product Configuration & DeliveryDelivery

¤ To suit the requirement of the customer - flexibility, customer focus

¤ To try to arrange “one vendor delivery” for the customer

PRICE

No option of Price Skimming in this segment, likely-to-be a high churn market;

To create initial customer base, the Price Penetration strategy is needed, but not at very low end;

In addition to price penetration, there is need to differentiate between different customers. So with in penetration, the policy of differential pricing will accurately focus on different customer segments.

PLACE No role for any distribution channel in present scenario;

But the “PoP” of RailTel will be strategic part of its marketing programme;

RailTel should focus on Golden Quadrangle of Delhi-

Mumbai-Chennai-Kolkata;

Also should be focused upon CBDs of Mumbai, bangalore, Delhi

etc.

Package of RailTel should include delivery at the PoP of the customers.

PROMOTION

The intelligent use of seminars / conferences

for promoting the cause of RailTel;

for educating the customers about QoS, the state-of-the-art technologies;

RailTel should target new telecom players from the stage of their initial planning and should also help them in their venture.

PHYSICAL EVIDENCE

“Environment” and “ambience” of

Corporate Office;

Equipment housing buildings;

PoP locations.

Dress and the impressions of its management people and other staff

Logo, symbols, tender documents, SLAs/ASLAs documents, visiting cards

PEOPLE Most important asset of any organisation

Its higher management will reflect its positioning in terms of “reliability”, “technical competence”, “commitment towards customer focus” etc.

“People” will only be instrumental in activation of other elements of marketing programme

Effective HR Policy will help in retaining and attracting better lot of people

The importance of one-to-one marketing in B2B market, as it is, further strengthens the argument in favour of People

PROCESS

The processes in the past were very apathetic to customers. RailTel

can capitalise upon those away-from-customer practices and simplify the

front-end processes and back-end processes;

Packages based on the the “distance”, “period” and “bandwidth

capacities” and not on the sole basis of “demand note” practice of old.

RECOMMENDATIONS Becoming BW provider is only entry ticket to the market, it can’t be sole strategy to survive in the long run;

It must target the customers of “managed bandwidth”

The positioning must be along “reliability”, “QoS’, “punctuality”, “flexibility”, “value for money”, “zero-down-time”, “we’re customer care people”

The package configuration and delivery to suit customer’s requirement

It should practice compounded pricing strategy of penetration pricing (not at very low end) further coupled by differential pricing

Also other three Ps, as discussed

RECOMMENDATIONS

It is only a short term strategy, RailTel as to think of moving further

up in the value chain

The need for a strategic partner, expert in marketing, is most

immediate. The success of the venture much depends upon this action

The choice of JV partner will effectively help in positioning the

product(s) launched by RailTel

The speed of transformation of its planning from paper to the field is

also another important element for this venture to succeed.

LIMITATIONS & SCOPE FOR FUTURE STUDY

This study did not focus upon the possibility of engaging in the

“bandwidth exchanges” as this will be the future of this market

(Reference for further study in this area: A preliminary study conducted

at www.infoline.com)

Further this study could not delve into options further for moving up

the value chain either into the DLD segment or into the ISP segment.

THANK YOU