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Indian Institute of Management Ahmedabad IIMA/ IITCOE0002 Idea Cellular Limited “We talk a lot about how we are the fastest growing mobile company, how come we are not as good as Vodafone on postpaid? How come our customer satisfaction scores are going down?” … Sanjeev Aga, MD, Idea Cellular Ltd. Mr Sanjeev Aga, Managing Director of Idea Cellular Ltd (ICL), a part of the Aditya Birla conglomerate in India, was doing a year end review of the implementation challenges his company faced in the highly competitive, fast growing cellular services market in India in December 2008. The areas of concern identified by him were broadly in the growth of rural business, management of Information Technology (IT), marketing, and human resources (HR). While other functional areas were equally important, Mr Aga felt that these four areas presented unique challenges in the context of the telecom sector in India. In response to the severe competition in the sector, ICL had taken several initiatives. Mr Aga mused that in earlier assignments where he had headed several challenging businesses, he had felt cynical about ’transformational’ projects or specific initiatives that promised to bring about fundamental changes. “Why did a cynic like me feel the need for a transformational project? However given the complex challenges faced by ICL, I felt there was no alternative but to bring about changes this way as the models that had worked in other sectors were not applicable to the telecom sector. Therefore, I approved six transformational projects that were important for ICL. I hoped that these would bring speed and scalability although they required huge investments of money, managerial time, and change effort.” Four of the transformational projects were related to managing the complexities associated with the four recent mergers; developing a new sales management system for the entire organization and HR automation were the fifth and sixth ones respectively. Some of the challenges identified by him were: a) “We were growing very fast. We were expecting our revenues to increase from ` 20,000–30,000 million in 2006 to `200,000 million by 2012. The magnitude of the scale of operations was overwhelming. The operational intensity of our business is very high. Our customers create the voice service each time they connect to the telecom network. For example, there were 400 million calls every month this year, each of which had to be tracked; not only for billing purposes but also for understanding our own operations. Not only is it a 24x7x365 business, it is a service that may be generated by the customer at any point in time from any place. As our customer base increases, the number of producers of services increase the complexity of not only assessing the Prepared by Professors Rekha Jain, Piyush Kumar Sinha, and Manjari Singh. Research assistance provided by Mr Varun Chandra, Research Associate, IIMA-Idea Telecom Centre of Excellence is acknowledged. Funding support provided by IIMA-Idea Telecom Centre of Excellence and the Indian Institute of Management, Ahmedabad, is gratefully acknowledged. Cases of the Indian Institute of Management, Ahmedabad, are prepared as a basis for classroom discussion. They are not designed to present illustrations of either correct or incorrect handling of administrative problems. 2010 by the Indian Institute of Management, Ahmedabad. 2 of 35 IIMA/IITCOE0002 capacity, but also the network planning and deployment effort. Our capacity planning had to take this variability into account. Since the last three years, the size of our operation has nearly doubled each year and this trend is expected to continue for the next three years. To get a feel of the rate of growth, consider that whereas earlier we had been putting up five towers a month, now it is 1,500. b) We realized that a majority of our investments were going in rural areas and we were not equipped to manage this. Our immediate reaction was to put more people. However, this did not lead to commensurate outputs. Then we began to recognize the specific challenges of managing rural operations. For example, when the sales person visited tower locations that exhibited no or low traffic, his/her entire working day could just be spent on traveling up and down from the city to the location. It took a sales person four to five hours of travel (including the waiting time) one way because such locations would typically be around 40-50 km from an existing district head- quarters. Often there would not be a direct bus and changing a bus could add to the travel time. The wait-time and poor condition of the roads in semi-urban and rural areas aggravated the situation. Such trips left little or no time for the salesperson to strengthen the sales process, meet distributors, etc. So we needed to review the processes designed for rural areas. c) Our customer profile was changing very fast. Average Revenue Per User (ARPU) was decreasing fast and this had put pressure on margins and profitability. Earlier our customers were predominantly urban middle class, in the age group 25-35 years. Now we were covering non-urban areas with younger people. Thus, there was a huge diversity in customer types. Earlier the variation in ARPU ranged from ` 3,000 to ` 135. Now it ranges from ` 600 to ` 60. d) Often there was little understanding of how decisions made by one business unit influenced the workings of the other departments. For example, when a new tariff plan was introduced, it was necessary to understand that the number of calls to our call centres may suddenly increase as subscribers may seek clarifications regarding the new announcement. From ICL’s perspective, such calls use system capacity without generating any revenue. (ICL estimated that the cost of responding to each such call was nearly ` 7 per call). e) Even as we needed better systems for operations management, we simultaneously needed to innovate to add value-added services to our bouquet. For example, how do we devise mobile-based application for truck companies to manage their fleets or for banks to provide banking services? f) We needed an environment within the company where we could discuss the policy and regulate the debate to influence it. g) New areas of geographic expansion posed challenges. In the new licensed circles, the frequency band was 1,800 MHz, which required higher investments. Further, covering the North-East circles was difficult as the population density was low and high vegetation caused difficulty in telecom transmission. However, if ICL did not penetrate in such areas, then its customers in other parts of the country would not get coverage when they went there.” 3 of 35 IIMA/IITCOE0002 EVOLUTION OF ICL ICL is a part of the Aditya Birla group, one of India’s largest industrial conglomerates that has interest in finance, retail, textiles, chemicals, mining, among several other sectors. Over a period of time, the group’s ownership pattern of ICL had changed significantly. The Birla’s had not considered active role in the telecom sector earlier, but seeing the growth potential, they increased their presence in the sector. ICL (at that time named Birla Communication Ltd), was a joint venture between the Birla group and AT&T in 1995. (Presence of a foreign partner was a necessary condition for participation in the licensing process at that time). ICL had been an early participant in the private provisioning of cellular services by acquiring licenses to operate in two of the larger states (Gujarat and Maharashtra). This opportunity had become available when the Department of Telecom (DoT), Government of India, opened up the telecom sector for private participation in 1994 for Global Services for Mobile (GSM) services in the 900 MHz band. Driven by a growing economy, regulatory initiatives, and competition, the cellular market in India saw several mergers and acquisitions. In 2000, Birla AT&T merged with Tata Cellular,Andhra Pradesh (AP)), to form Birla Tata and AT&T (BATATA). In 2001, DoT announced GSM licenses in the 1,800 MHz band in the subsequent licensing process. BATATA bid for and won Delhi metro circle. In 2002, it acquired Celcom (900 MHz), in Madhya Pradesh (MP). In subsequent acquisition in 2004 of Escotel license in Haryana, Uttar Pradesh (West) (UP (W)) and Kerala, (all in the 900 MHz band), it gained presence in eight circles. In 2006, ICL launched services in Himachal Pradesh, Rajasthan, UP (East) by acquiring Escotel licenses in the 1,800 MHz band. In 2008, ICL acquired licenses for Mumbai, Bihar, Tamil Nadu, and Orissa through payment of a fixed license fee in an open entry basis that was introduced by DoT in 2007. ICL acquired Spice that had operations in Punjab and Karnataka in 2007-08. These acquisitions had given ICL an almost pan India presence. ICL had plans to start services in Tamil Nadu, Chennai, and Orissa. It was awaiting spectrum in West Bengal, Kolkata, Assam, North East, and Jammu and Kashmir. Exhibit 1 gives the geographic location of ICL services and service status as of December 31 2008. Over a period of time, as the Indian telecom sector liberalized, ICL, like several other Indian operators acquired the National Long Distance (NLD) and International Long Distance (ILD) licenses. Bharat Sanchar Nigam Limited (BSNL), the wholly-owned government incumbent organization was the largest player in the NLD space at that point of time. Amongst the private enterprises, Bharti Airtel and Reliance Infocomm had a growing presence in this space, but for ICL, this move was aimed not so much to become an integrated service provider, but more to shield itself from policy and regulatory changes that the incumbent government service provider could impose as a consequence of its dominant position in the sector.

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