Business Today

Path to profitability

Uninor, which lost some 10 million subscribers from January to March, is close to breaking even. How did it achieve this?
Sunny Sen        Print Edition: Aug 4, 2013

The overcast sky fails to dampen Yogesh Malik's good spirits. Indeed, the 40-year old chief executive of Uninor is relieved to see rain clouds after a 45-degree day. He is in Moradabad, Uttar Pradesh, a town of 600,000 people, on a tour to see how brand Uninor is faring in various markets. He has two stops left to make in the next two days - Rudrapur and Haldwani. It is raining in Rudrapur, a 90-minute drive from Moradabad, and the temperature there has dropped sharply, according to reports.

All the better for Malik to meet shopkeepers, dealers and customers. After all, this year, Uninor expects to break even in terms of earnings before interest, tax, depreciation and amortisation (EBITDA). In other words, it expects revenues to equal the cost of operation. It has also advanced its target to break even on cash flow by two years. The new target is 2013.

In a dimly lit shop in Rudrapur, a father and son, both bare-foot, are chatting. Malik walks up and introduces himself. Mohammad Rafi, the son, owns the shop, called S.R. Electricals, which sells Uninor SIM cards and recharge coupons. Malik asks him what people want, and whether Uninor customers face any problems. Rafi looks hesitantly at the Uninor field staff member who provides his store with his daily quota of coupons and SIMs. "Don't worry, tell Sir [Malik] what your concerns are," says the Uninor staffer. Rafi speaks up: "There is a bit of a problem with the network coverage here. If you can fix that, Uninor will beat Idea." In Rudrapur's circle, UP (West), Uninor has a little less than half of Idea's user base. Malik assures Rafi that the problem will be solved, as the company is scheduled to inaugurate a new tower in the vicinity that very day.

Later, touring Andhra Pradesh, he meets Ramarao, who owns another tiny store, called BVR Communications. Ramarao tells Malik that he gets his commissions on time, sometimes even in advance - something no other telecom operator gives.

So why is the chief executive of a Rs 2,975-crore (in 2012) company worrying about trifling commissions? Malik's goal is to understand what customers in different circles need. He has covered 1,800 km in six days - more than the length of Norway, home of Uninor's parent, Telenor.

This is the approach that helped Uninor break even in terms of EBITDA in three circles - Gujarat, UP (East) and Andhra Pradesh. UP (West) looks set to be the next.

This is remarkable for a company that has, since its inception in 2009, spent a good chunk of its time fighting legal battles and regulatory uncertainties. Uninor went to court over partnership issues with its Indian partner, Unitech. Its pan-India licence got quashed by the Supreme Court, and it lost about 10 million subscribers when it had to reduce its operations from 13 circles to six. It had to let go of lucrative circles such as Mumbai, Kolkata and West Bengal.

Today, it is not only close to breaking even, but also boasts the lowest tariffs in the country, in keeping with its slogan, "Sabse Sasta" - the cheapest. The strategy enabled Uninor to add more subscribers than incumbents Airtel and Vodafone in 2011. Uninor also has the lowest operating cost - about 30 per cent lower than the incumbents.

Malik says Uninor's focus is on three things: mass market distribution, ultra-low cost of operation, and delivery of basic services such as voice, SMS and basic value-added services. It has not bought 3G and 4G licences, and does not offer post-paid services. "If you say sabse sasta, you cannot sustain that if you are not conscious about your cost," he adds. Low cost is the second most important reason why Uninor is close to breaking even.

Since December 2012, when Uninor's operations were reduced to six circles, it has added 21 per cent more subscribers than Vodafone in those circles. Its current subscriber base is 32 million, compared to Vodafone's 155 million.

"Uninor has been looking at a business transformation model… how operations and business efficiencies can be worked upon… from IT to last-mile operations," says Munish Seth, President and Managing Director of Alcatel-Lucent India, which manages Uninor's network.

By the time Malik came to India in October 2010 as Uninor's chief operating officer, he had worked in Bangladesh, Brazil, Canada, Norway, Ukraine, and the Czech Republic, where he met his future wife, Jana. When their son Dante - named after the 13th-century Italian poet - was born, Malik was Chief Operating Officer of Telenor in Norway and board member of Uninor in India. Shuttling between Norway and India became difficult, so he decided to give up his Norway role and station himself in Gurgaon, near Delhi.

Around this time, Sigve Brekke, the Norwegian politician-turned-businessman who saved Telenor's floundering Thailand operations, realised that the Indian operations were in trouble, too. Tata DoCoMo had started a pay-per-second price war. Airtel and Vodafone had become more aggressive. Telenor could not afford to lose in the world's fastestgrowing mobile market, with 600 million mobile phone users in 2010.

Brekke, raised in a Norwegian farming family, was not one to give in. His inspiration was his grandfather, who worked long hours on the farm and never took long vacations. "For him, it was always about proving something," says Brekke.

When it started, Uninor had grand plans in India. But its costs were too high. Revamping operations was harder than incubating Uninor, but Brekke was out to prove himself. "I believe in not giving in, even if it looks really, really dark," he says. His chief lieutenant in the battle to turn Uninor around was Malik. "Yogesh has been part of the whole change in Uninor," Brekke says. "In the last three years, it is his as much as it is mine."

Both Brekke and Malik were clear that they needed to do something unprecedented in the history of Telenor and Indian telecom: work out an ultra low-cost model. This meant negotiations with all vendors, setting up new distribution and marketing systems, new technology, and a focus on select services.

Malik is obsessed with daily performance. Every morning he gets an e-mail with the previous day's total revenue, the number of new subscribers, and gross margins. Improving margins is a daily effort at Uninor. In the afternoon, another email message arrives, containing a report on the cost of operations, price of service and other details.

This is possible because Malik has broken up each circle into small pieces. His team developed what it calls the "cluster approach" - each circle is divided into five or six zones, and each zone into six to eight clusters. This helps analyse every area minutely, so, for example, if a retail spot has not been able to sell enough Uninor SIMs, the sales team can precisely target it to increase sales. Only the fast-moving consumer goods industry has this kind of intelligence, says Malik. "We had to take it from there, because we wanted to be the best in the mass market," he adds.

Uninor's intranet portal has a performance indicator column, which shows the monthly target for each circle and its current status. The cluster approach helped Uninor develop new tariff plans such as 'Rocket Recharge', which lets the shopkeeper customise the plan based on the customer's usage. The shopkeeper feeds the customer's mobile number into a machine that automatically identifies the usage pattern and recommends the best plan.

Rudrapur retailer Duresh Maurya, who runs a small, nameless shop since seven years, says: "Rocket Recharge is a hit … couples are lapping it up." He says many customers buy a SIM for themselves and one for their girlfriend.

Maurya's is a 'Uninor blue outlet', which means he gets 1.25 per cent more commission than other outlets. The categorisation is based on cluster-level intelligence on sales, the number of repeat customers and other criteria. Malik says that this acts as an incentive for retailers to sell more and build brand loyalty.

The loss of circles and subscribers did not affect Uninor's break-even target. Malik made the most of assets such as IT infrastructure, towers and the network.

Analysts are enthusiastic about Uninor's new model. Tore A. T√łnseth, analyst at SpareBank 1 Markets, a Norwegian securities firm, says: "Telenor also learned it had to be best-in-class when it comes to holding its cost base down and creating an asset-light operation."

Uninor has only 4.4 MHz spectrum, while Airtel and Vodafone have more than 6.2 MHz. The higher the MHz, the more the traffic the network can handle. "But we are able to carry more traffic than the incumbents, with half the number of sites," says Malik. How is that possible?

Uninor's best network is where 80 per cent of its customers are. "Our radio engineering, towers, algorithm and antennas are really advanced," says Malik. "I have never worked with less spectrum anywhere than here in India." In Norway, he says, Telenor's spectrum is over 30 MHz.

Every Uninor tower site uses 100 per cent of its capacity, compared with 70 per cent usage among rivals. "This leads to a bit of voice clipping or disturbance," says an executive at one of Uninor's vendors, who does not want to be named. "But that is okay in rural areas."

Network partners Alcatel-Lucent and Ericsson, too, aim to cut costs. In an e-mail response, Chris Houghton, head of Ericsson India, said: "There was limited spectrum and power in these growth circles. We worked on innovative solutions that finally ensured a double-figure percentage increase in network efficiency, powersaving solutions and transmissionefficient features."

The IT strategy had to change. "The strategy originally was to be a much larger player and build a big IT structure," says Anil Jain, Senior Vice President at Wipro, Uninor's IT partner. "From a high-cost structure, they wanted to go to a simple model… very lean." In call centres, employees were trained to resolve customers' queries right off the bat. The IT spend fell by 40 per cent, and the number of people by a third, to 300.

mosimageUninor shares a portion of the cost saved, as an incentive for its partners. The cost of operations per minute has fallen by 25 to 30 per cent, says Malik. He adds that the price per minute is 30 per cent lower than what the incumbents offer. That's where the break-even is coming from, he says.

Brekke says that Uninor's "cheap minutes" are becoming the benchmark for other Telenor operations. The Norwegian company will implement the India model in Myanmar, where it recently got a licence. The cluster approach is being adopted in Bangladesh, Malaysia, Pakistan and Thailand. "If you can take this to other markets, where the competition is a bit lax, then you can create a business value which is much better," says Brekke.

It's not yet time to party. But, to Malik's delight, the Foreign Investment Promotion Board has allowed Telenor to raise its stake from 49 to 74 per cent in Telewings Communications, its newly formed joint venture with Lakshdeep Investments & Finance. Uninor, which is still a Telenor-Unitech joint venture, is yet to transfer its assets and customers to the new company which was formed in November 2012, after the Unitech debacle.

Meanwhile, after two and half years in India, Brekke shifted base this year to Singapore, from where he continues to oversee India operations. As for Malik, he has his sights set for now on the road to profitability, and is focused on costs and customers. His personal to-do list - climbing Mount Kilimanjaro and skydiving - will have to wait.

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