Location, location, telecommunication

Newsroom 26/07/2010 | 11:23

Saturated mature markets often force companies to woo their competition’s clients in an attempt to increase their customer base and improve financials. When on top of the already difficult environment, the respective markets come under pressure from external factors such as depressed consumer spending, increases in taxes and general insecurity, the fight over clients goes further, including deeper customer segmentation, price wars and cost reduction to the lower limit of securing business continuity.

Over the past six months or so, telecom companies have seen revenues decline steeply compared to the peak year of 2008 and even from 2009. Mobile operators have lost from 15-20 percent on a quarterly basis, while cable TV and internet companies have seen their bottom lines shrink both in terms of users, number of services user and ARPU.

One model that has achieved some success in fighting against the tide has been to localize offers and services based on the particular market circumstances of a given region or city. Acquisition offers have been modeled to respond to local competitive pressures rather than the more general central common strategy.

Adopting this strategy, RDS made the aggressive move to poach existing UPC customers by offering a free service until the end of their contract with its competitor in some critical markets such as Cluj and Bucharest, while not making the policy a national one. UPC responded late by offering clients who wanted to terminate contracts special deals from below EUR 4/month for cable TV, which would be roughly 25 percent less than the ARPU. However the retention offer was only valid in communities that were being targeted by RDS and Next-Gen.

Try comparing the pricing for the basic TV package with various companies in cities across Romania. You will notice the number of TV channels differs wildly from Cluj to Zalau, Iasi, Bistrita and Constanta within the same company. Customers may pay anything from RON 20 to 40 for the same “basic package” depending on where they are and how interesting they have become to their service provider’s competition locally.

Even though the cable and internet market has been consolidating steadily for the past five years or so, there are still small and medium-sized competitors that make the life of the juggernauts miserable with ultra-low cost offers: TV for RON 11 in Zalau for instance, TV for RON 15 in Turda and Galati and so on.

And the hard-hitting strategy is not limited to the lackluster cable and internet business, as similar tactics are being employed by Orange and Vodafone. While Orange distributes SIMs in southern counties, Vodafone sends by mail tens of thousands of SIMs to the mailboxes of loyal Orange users in Transylvania. Virtually whoever wants a free SIM with a one-off benefit or even lifetime benefits can get one.

Telecom companies apparently believe that going after the competition’s client base in geographical areas where they do not do that well makes business sense. However, experts say a better approach could be outpacing their rivals in terms of investment in service quality and innovative service. Since the current slump will not last forever, when the green shoots appear, the companies that made smart investments will reap the benefits ahead of those who focused on price wars to increase the client base for the moment, commentators say.

Nicu Pana

Freelance journalist and consultant

Nicu.pana@gmail.com

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