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How Supreme Court’s 2G verdict impacts ad spends

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How Supreme Court’s 2G verdict impacts ad spends

With several large telecom players at a disadvantage after the Supreme Court verdict cancelling 122 2G licences granted ‘illegally’ by former Telecom Minister A Raja, there are concerns that advertising spends by the affected telcos might be the first casualty. At stake is an estimated Rs 800 crore – which goes into advertising mainly in print, television and outdoor media - money splurged by these companies to build well known brands in a short period of time.

In any crisis situation, what an affected company does is curtail advertising, and one would expect this to play out in the current scenario too. However, according to the head of a creative agency, who refused to be named, spends go up whenever there is a change - positive or negative – and to manage this change or make the most of it, the players involved end up advertising more. That’s exactly what has happened.

Says Arif Ali, Head, Brand & Communications, Loop Mobile (India) Ltd, which has lost licenses in 21 circles, “We have already increased our budget from what was decided earlier to communicate impactful and aggressive offerings that will once again redefine the mobile experience for our subscribers. Our focus is to reassure our subscribers that our services will remain unaffected, through a complete stakeholder communication strategy. Right from connecting with our corporate, individual and pre-paid subscribers to our channel partners, vendors and business associates and most importantly our employees, our approach is to communicate, using all media, that our services shall continue unhindered.” Loop will also continue to be the Official Mobile Network of Mumbai Indians in IPL 5.

“Since we regard our subscribers as our brand endorsers and ambassadors, we are constantly in touch with them across all touch points,” reiterates Surya Mahadevan, COO, Loop Mobile (India) Ltd.

The CEO of another affected company, Sistema Shyam TeleServices Ltd (SSTL), has been quoted by the media as saying that the company’s advertising spends would not be curtailed. An unperturbed Vsevolod Rozanov has announced that he would go aggressive with marketing and launch four new tariff plans in the coming weeks. “Indian operations will remain business as usual for Sistema Shyam TeleServices Ltd. This naturally means that our marketing and ad spends remain unchanged. Shortly, we intend to roll out new tariff plans, as part of our regular calendar of activities for 2012,” declared a spokesperson from SSTL, which has lost licenses in 21 circles.

Meanwhile, one of the largest affected players, Uninor, while not spelling out its exact advertising strategy, says: “The court has not ordered stoppage of any services. We will remain a strong competitor in our circles. More than 36 million Indians have chosen Uninor as our customers, workforce and partners. The Telenor Group has invested over Rs 14,000 crore in equity and guarantees in Uninor. We are the competition. And competition will prevail.” Last week, the holding company Telenor’s regional media review too remained unaffected, with ZenithOptimedia retaining the Uninor business in India. Uninor has also been issuing faith-building ads, and going more aggressive with PR. According to industry sources, Uninor’s ad spends in India would be in the vicinity of Rs 100-125 crore. Of these, outdoor ad spends in the affected circles are estimated to be around Rs 60 crore, and these have not dwindled.

To top it all, the impending 2G auctions – to be held after the four-month window given to affected telcos until the government completes formalities -- hold out the promise of new players entering the market, with big spends on brand-building. Even if existing players attempt to buy back the licenses, they will have to advertise heavily to recoup brand image.

Most Of The Ad Action Is Outdoors
Most of the advertising in the affected circles – mainly comprising small towns - is done through OOH media. Approximately Rs 120 crore is spent on outdoor media by telcos in the cancelled circles, and Rs 300 crore in the rest of India, according to industry sources. More competition means more advertising. “Before the 2G scam broke, we used to have continuous hoarding bookings from Reliance, Vodafone, Airtel and Loop. But once the scam surfaced, they chose to lie low. The Supreme Court verdict seems to have made things clear and their purse strings are open again. Now we have more business from them as well as unaffected telcos, which are out to poach subscribers,” observes Sudesh Paul, BDM at Bright Outdoor Media.

Yogesh Lakhani, CMD of Bright Outdoor Advertising, qualifies his statement. “In Mumbai, work has suddenly increased, even if temporarily, with Loop, Idea and Vodafone giving us more business,” Lakhani says.

Noomi Mehta, CMD of Selvel One Group, too feels that the verdict will increase the overall marketing spends of the telecom sector on outdoor and all other mediums. “Telecom operators who have not been affected will devise a better strategy to get customers and increase their spends as the market is now open to a new set of consumers. Any regulatory change or order impacts marketing budgets positively,” Mehta insists.

In the long run, even if one or two large players enter the fray post auctions, they would cover up the budget and spends will be more than the present level of spends on outdoor media.

Billings May Be Hit, But Temporarily
Until last year, telecom was doing rather well. In 2009-10, it was one of the biggest categories in regional print. In the last year, it has dropped, and it is out of the top five category of advertisers now.

Though there is a spurt of ads now, Nikhil Sheth, President, Mahuaa TV, sees a temporary loss of billings at some stage. As telecom is still a significant advertiser in national and regional media, there will be a primary impact, he feels. “Ad agencies will have fewer commercials to be made, so they will suffer along with production houses. Flex printing for outdoors will reduce, impacting the labour class. The approximate loss for all players and all circles will be to the tune of Rs 75 -100 crore across Print, Radio, TV, Outdoor, Digital, etc.,” he points out. “The secondary impact will be that the existing players (Airtel, Vodafone, etc.) may reduce spends in those circles with the threat of other players disappearing. As a result, ad rates across mediums may also get impacted,” Sheth explains.

The actual graph of ad spends may differ from player to player. Etisalat never launched or invested monies on ads, so it won’t see much change. In fact, Etisalat, which reportedly paid Rs 13,000 crore as license fees, was expected to have a huge ad budget when it rolled. They are the only players to apply for pan-India 2G telecom circle licenses at one go so far. But as Etisalat DB is directly involved with people related to the 2G scam, Etisalat’s re-entry seems unlikely. Etisalat apparently held back from a major rollout in India because of the uncertainty created by legal problems relating to the 2008 licences.

Uninor outdoor spends are substantial; so in case Uninor manages to retain its lost licenses, the budget would continue to be the same. But if a new player comes in and picks up the licenses, the budget may be doubled as a brand-building exercise for a new brand -- the new player could spend as much as Rs 120 crore per annum. Ditto is the case with MTS, which spends about Rs 65 crore per annum.

Similarly, if Videocon loses its licenses and someone else picks them up, the budget increases; otherwise Videocon's per annum spends on OOH media across India is not more than Rs 20 crore per annum.

While there was no response at all from any of the senior S Tel officials we tried to contact to determine their ad volume and strategy, a former PR representative, on condition of anonymity, said all operations in the NCR region had ceased.

Meanwhile, banks that have lent to companies that have lost licences might be staring at huge non-performing assets (NPA)s. Vendors of these companies might be left wondering whether their clients will continue to remain in business. Advertising agencies & media agencies of these companies might be the first ones to get impacted, along with marquee properties sponsored by the new players.

The Supreme Court ruling is also being seen as a small setback to India’s image as an international investment destination. Many key people we contacted said “the whole issue is so emotional, legal and political that we wouldn’t like to add to it with comments”.

But in the long- term, it is a win-win scenario for advertising per se, which is seeing a lot of volume now, in the form of crisis management and challenger ads, and can expect a bigger volume post fresh 2G auctions if new players enter the field. For, whoever it is that gets hold of the 2G spectrum – old player or new -- will positively need to advertise.

(With inputs from Noor Fathima Warsia and Dipali Banka)


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