Carving a niche

With Middle East operators vying to enter the Asian Subcontinent, we speak to Shamik Das, CEO of STel.

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By  Roger Field Published  August 31, 2009

With Middle East operators vying to enter the Asian Subcontinent, Roger Field spoke to Shamik Das, CEO of mobile start-up STel, about the challenges of entering the competitive Indian mobile sector.

For Middle East telecom operators India holds a strong allure. With a population of more than 1.1 billion people and a combined mobile and fixed-line penetration of about 40%, India represents a market with enormous potential for the Middle East's cash-rich operators, which have long faced saturation in their domestic markets.

But the Indian market also brings major challenges. Indeed, while the country has among the fastest subscriber growth in the world, with the number of mobile users expected to double from a current base of 450 million to 900 million by 2020, operators in the country must also extract profits from often chronically low ARPU.

Bahrain's Batelco appears to be aware of these challenges, and opted to enter India by investing in a company with the local knowledge to make a success of the country's rapid mobile growth.

The Bahraini incumbent now has a 42.7% stake in STel, a privately-owned Indian mobile operator with a licence to operate in six states, and plans to increase this to a 49% stake in the coming months.

The arrangement appears to be the best option for both companies, with Batelco gaining a stake in the Indian market without the risk of setting up an operation in an unfamiliar market that bears little resemblance to its existing markets.

Meanwhile, Shamik Das, CEO of STel, admits that Batelco's experience of operating in Bahrain and setting up operations in other countries including Jordan and Saudi Arabia, has also been valuable in establishing STel.

Growth potential

Das, who held senior roles including group CFO and regional CEO at Bharti Airtel before joining STel, explains that the new company holds licences to operate in six of India's 28 states: Bihar and Orissa in the east, Jammu & Kashmir and Himachal Pradesh in the north, and Assam and North East states in the northeast region.

STel's licences mainly cover ‘C ‘ circles - areas that include mainly smaller cities, towns and rural areas - but Das sees a huge benefit to entering less developed parts of the country, which have a huge population and penetration rates that tend to be lower than the metropolitan areas.

"The C circles usually have slower economic growth and low per capita income and lower GDP, but to their advantage, those states have a population of 226 million," says Das.

For telecom purposes, India is divided into three ‘circles' referred to as ‘A', ‘B' and ‘C', Das explains. These are determined according to the GDP of the areas and the revenue that can be generated for the telecom service providers there. ‘A' circles tend to be the bigger cities, while ‘B' circles are medium sized cities and towns, and ‘C' circles are smaller cities, towns and rural areas.

"CAGR of subscribers in the states that our licence covers is about 103%, therefore it is growing faster than A and B category circles, where significant growth has already happened," Das says.

"The highest growth in India is in these C circles where we have the licence, because earlier there was little growth. All the big telcos were concentrating on high capex, high investment and high licence fees, but mainly in A and B circles, although gradually they are now investing in C circles."

Das adds that as a general rule, wherever there is a big population, strong mobile growth tends to follow. And with the Bihar region alone having a population of 130 million people, the potential market awaiting STel looks promising.

The combined area that makes up STel's licence covers about 26% of the geographical area of India and about 20% of the population. It also has one of the lowest wireless penetration rates in India, at 24% compared with an average of about 36% for all of India.

Another big advantage for India's operators is that the country is currently adding more than 11 million mobile subscribers a month, of which 60% - 65% are in rural areas.

The business case for starting operations in ‘C' areas is also strong owing to the licence fees, which are lower than the ‘A' and ‘B' circles. "The revenue share that we pay to the government as a percentage of revenue is also lower so there are multiple advantages in these circles, combined with major growth potential compared to other locations," Das says. "There is this major untapped growth, and our circles are growing faster than average."

Passive network sharing

With ARPU for mobile services generally low throughout India, S Tel is set to make cost savings by sharing the existing passive network of other operators. The company will have its own active network including BTSs and will have "complete control" of its network, allowing it to run an efficient, low cost operation, according to Das.

"We own only those parts of the network that are customer facing which we need to own like the brand, the active network, and the distribution chain," Das says.

Furthermore, he adds that the active network will be run as managed services by STel's network partners, further increasing efficiency.

"That concept gives us resources and makes our business model more efficient. The advantage we have is we don't need hundreds of people who are normally employed by the telcos to run this business," he adds.

Team effort

Bahrain's incumbent operator Batelco, which will soon increase its stake in STel to 49%, from its current stake of 42.7%, plays a "very active role" in the ongoing development of STel, according to CEO Shamik Das. Three senior Batelco directors are members of STel's board, which meets almost once a month.

"We get from both the Indian board members and the Batelco board members, immense support," Das says. "They go through not just the strategic plan but also the operation, how it is moving, what is happening in the project, what inputs are required further.

"The experience they have of running operations in Bahrain and other countries is definitely helping us to shape up this business well."

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