Airtel Magic - Selling a Pre-paid Cellphone Service

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Themes: Marketing Mix
Period : 2002
Organization : Bharti Cellular Limited, Spice Telecom
Pub Date : 2003
Countries : Switzerland
Industry : Cellular

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Case Code : MKTG040
Case Length : 12 Pages
Price: Rs. 300;

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In October 2002, Magic led the market, with 30% of the market share. Bharti claimed that its strategies were one of the most ambitious experiments ever in the Indian pre-paid cellular telephony market. However, given the increasing competitive pressure, doubts were being expressed regarding the ability of Bharti's marketing initiatives to help Magic retain its 'Magic' in the future.

Background Note

Cellular telephony was introduced in India during the early 1990s. At that time, there were only two major private players, Bharti (Airtel) and Essar (Essar) and both these companies offered only post-paid services. Initially, the cellular services market registered limited growth. This was primarily due to the high tariff rates charged by the companies (about Rs 16 per minute for outgoing calls). Indians who were used to paying much lesser amounts (Rs 1.20 for 3 minutes) for landline telephone calls found these to be very expensive.

However, as there were only two players, a monopoly regime prevailed. The tariff rates as well as the prices of cellular phone handsets (instrument) available in that period continued to remain high. Hence, cellular phone services during that period were regarded as a luxury and companies mostly targeted the elite segment of the society. Moreover, these services were mostly restricted to the metros.

Other factors such as lack of awareness among people, lack of infrastructural facilities, low standard of living, and government regulations were also responsible for the slow growth of cellular phone services in India. Although the cellular services market in India grew during the late 1990s (as the number of players increased and tariffs and handset prices came down significantly) the growth was rather marginal.

This was because the cellular service providers offered only post-paid cellular services, which were still perceived to be very costly as compared to landline communications. Following this realization, the major cellular service providers in India, launched pre-paid cellular services in the late 1990s. The main purpose of these services was to target customers from all sections of society (unlike post-paid services, which were targeted only at the premium segment). On account of the benefits they offered (Refer Exhibit I), pre-paid cellular card services gained quick popularity during the late 1990s.

Between the late 1990s and early 2000s, tariff rates declined 75%. Reportedly, Indian cellular players were offering the lowest cellular tariffs in the world (Rs 1.99 for 60 seconds). By October 2002, of the 8.5 million cellular phone users in the country, 65% belonged to the pre-paid segment. Also, an estimated 80% of the new add-ons were pre-paid card subscribers.

Bharti, being one of the early entrants in the industry, (Refer Exhibit II for a note on Bharti), launched its own pre-paid cellular service under the Magic brand in January 1999. Magic was first launched in Delhi and later in other circles³ in India (where the company offered cellular services under its flagship brand, Airtel).

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3] India was divided into 21 'telecom circles' (circles). These circles were divided into three categories 'A,' 'B,' and 'C' based on their size and importance. Category 'A' - Maharashtra, Gujarat, Andhra Pradesh, Karnataka and Tamil Nadu. Category 'B' - Kerala, Punjab, Haryana, Uttar Pradesh, Rajasthan, Madhya Pradesh and West Bengal. Category 'C' - Himachal Pradesh, Bihar, Orissa, Assam and North East. Cellular licenses were separately issued to the four metros in India - Delhi, Chennai, Mumbai and Kolkata.