Caltiger Banks On Its Pricing Strategy For Net Telephony Success

Mumbai: | Updated: Apr 24 2002, 05:30am hrs
Caltiger chairman Joe Silva is playing the old game again: fight competition on pricing. At Rs 3 a call per minute to the US, he believes it is an entry barrier price that would protect the market from overheating, while making it attractive for customers to switch to Internet telephony.

“We expect 25,000 subscribers to test our product in the first month of operations because of our unique pricing. We are sacrificing our margins initially to grow the market,” he said.

Mr Silva runs the risk of repeating the past: offering a cheap service that does not come with the best quality. When Caltiger announced that it was adopting a free Internet access model, the subscriber base jumped to 7.5 lakh in December, 2001. But there were not enough ports to provide infrastructural support to such a huge traffic; and advertising revenue didn’t come in to make the business model sustainable. The difference between market expectations and actual delivery proved costly. “We realised early that the free ISP model was not sustainable as the Internet economy collapsed. We became a paid service,” said Mr Silva.

Subscribers did not find that acceptable and migrated. Caltiger now has just 20,000 subscribers, built over three months. “Though the model of a free ISP failed, our customers grew. We were, perhaps, too early with our pure advertising model,” the Caltiger chairman said.

Mr Silva says he has taken adequate action this time to lay the consumer support mechanisms before rolling out the Internet telephony service. There are call centres in 14 cities, which are being extended to another 11. The hardware warranty support centres have been built up along with the US-based Net2phone, with whom Caltiger has tied up. Besides, the call centres will handle complaint management and customer support. “We are initially focussing on customer support. We are expecting to add 10,000 customers every month in the initial phase. We are ready for it,” he said.

Not everybody is convinced. Rivals say that Caltiger, in its haste to start operations quickly, has not built an adequate backend and infrastructural support in terms of bandwidth. “Mr Silva has a tendency to rush in,” said a telecom operator who is close to him.

For a sector that will need financial muscle to sustain itself over a long period, a start-up company like Caltiger needs to be agile and grab the opportunity of being the first mover. “The hardware is here, the pre-paid calling cards are ready. We are going national, a week after our test launch in Mumbai on Monday. We really moved in quickly, after getting the licence,” said Mr Silva.

Even as the government announced the opening up of Internet telephony, Mr Silva was strongly pursuing an alliance with Net2phone since September. The contract was signed in early March, 2002. The tie up with the leading global Internet telephony player allows Caltiger to bundle devices such as Yap Jack, headsets and IP Phones with its pre-paid cards. Though it is not an exclusive arrangement, Caltiger is the only company to whom Net2phone has extended its support so far. “We moved most of our hardware equipment by air rather than by ship to increase our time-to-market,” boasts Mr Silva.

Being ready with a business model was easy, after the Net2phone alliance. “We are adopting a device-led strategy. Initially, we will introduce eight devices, in the basic range. Later, we will launch products like cameras on IP and IP video phones. We expect the market to take six months to mature,” said Mr Silva. The flagship product will be the Rs 10,000-price Yap Jack as it can be used without a computer. Incidentally, Net2phone and Ionosphere are the only companies who have introduced devices in the market. The other global players are Dialpad, Mediaring and Deltathree.

Pricing is a key strategy in Caltiger’s business model. Though the introductory offer of Rs 3 a call per minute will be raised to Rs 5 within a month, it will be still lower than Sify and other players who are proposing to fix it at Rs 7-10 a call per minute.

Pre-paid calling cards will be another source of revenue. The company is setting up a 72-strong dealer network with 5,000 retailers spread across the country. “We aim to earn Rs 120 crore in the first year, equally split between devices and calling cards,” said Mr Silva.

It is going to be a tough battle, with the crowding of too many players in the sector. Caltiger is making its services available across any ISP that the customer chooses; that way it may not need to have a huge infrastructure. Besides, it can cut across the limiting factor of a meagre 20,000 subscriber base. “We would prefer customers to route through our ISP. But we will also offer several small ISPs the ability to sell the service under their own private label,” said Mr Silva. He, however, does not agree that the company does not have the infrastructure. “Because of the free ISP model, we had a huge subscriber base. That infrastructure is available with us,” he remarked.

Big players like Sify do not think pricing is the determining factor. “The quality of the user’s experience will be crucial. That is why we are initially rolling out Internet telephony through our i-Ways or chain of cybercafes, as it will give us high-speed broadband connectivity. We will go directly to our Internet subscribers in the later phase. Our price for calls to the US will be between Rs 7-10 per minute,” said a Sify spokesperson.

Mr Silva believes the spread out of Caltiger in B and C cities would benefit the company. Caltiger plans to increase its presence from 41 to 75 cities by March, 2003. “In a competitive environment, we are putting our resources in other places. We also plan to have 1,000 VSATs in one year to connect remote areas,” he said.

Mr Silva is changing the turf from Calcutta to Mumbai. “I fought the ISP battle from Calcutta. I am going to fight the Internet telephony battle from Mumbai, which accounts for 35 per cent of the market. Mumbai is our war headquarters,” he said. It may mean spending more time away from the city he loves, but he realises that he has to “come closer to the customers.”

Does the past haunt him “The Internet actually had no story. We were squeezed between VSNL and MTNL, which held the monopoly for bandwidth and access. There was no model for dial up ISPs like ours. Everything went wrong, all to our disadvantage. In the Internet industry, we have stopped making predictions.”

Has he learnt from the past “We will be scaling our businesses far more prudently and slowly. Our strategy will be to try and survive for the next 6-7 years. Telecom is a survival business,” he said.

Can Caltiger survive “We have a strong partner in Net2phone. We are the first movers. Unlike other players, we are also building a stickiness model by giving the users of our product a number which can have a rechargable capacity,” Mr Silva said.

Stiff competition awaits all Internet telephony players as the field opens up for battle. “I am going to fight this war very hard,” says Mr Silva. For Caltiger to rule, it will require more than that.