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The incumbent telecom operators are pushing hard to attract new consumers and also keep hold of their existing ones.
Vodafone, India's second largest telecom operator, has launched a new pre-paid plan offering a huge 70GB data and unlimited voice calls for Rs 244. The offer is a first time recharge plan for new users.
There is another plan where the company offers 1GB data per day and unlimited voice calls for 56 days costing Rs 346.
Vodafone is not the only one tempting new users via such plans offering massive data and unlimited calls. Bharti Airtel, the country's largest telecom operator, earlier this month launched new prepaid plans for first time users, offering 84 GB of 4G data. Idea Cellular also launched a new plan with unlimited calls and up to 84 GB data.
The incumbent telecom operators are pushing hard to attract new consumers and also keep hold of their existing ones, in the wake of the aggressive entry of Reliance Industries' Jio last year.
Having garnered 125 million customers on its 4G VOLTE network in less than one year since launch, helped by free voice calls and cheap data, Reliance Jio is now targeting feature phone users with its Jio Phone. Even though smartphone penetration in India is rapidly growing, close to 50 crore people still use feature phones, which have predominantly run on 2G networks.
Offering 4G speeds to these customers at cheap rates and a 'free' phone would undoubtedly lead to more exodus of subscribers from the incumbents to Jio.
Data clearly seems to be the new oil and so, telecom companies' scramble to launch new plans with huge data to keep hold of existing customers and also attract new customers is not surprising.
According to ratings agency Crisil, mobile data consumption in India has grown 24 times in past five fiscal years.
“Between fiscal 2012-2017, India's mobile data usage per subscriber rocketed at 80 per cent annually to around 1.25GB per month on increasing adoption of 3G and 4G services, free data offered by Reliance Jio and a sharp 40 per cent fall in tariffs in the past fiscal alone,” said Prasad Koparkar, senior director, Crisil Research.
In the five fiscals through 2022, Crisil expects mobile data usage to touch 2.0-2.5GB per user.
But, plunging call and data prices have also had a toll on telecom operators' financial health. Bharti Airtel's first quarter consolidated net profit plunged nearly 75 per cent year-on-year to Rs 367 crore, while revenue declined 14 per cent to Rs 21,958 crore.
“The pricing disruption in the Indian telecom market caused by the entry of a new operator continued with industry revenues declining over 15 per cent year-on-year, creating further stress on sector profitability, cash flows and leverage,” said Gopal Vittal, MD and CEO, India and South Asia, Bharti Airtel.
Amid the heightened competition and pressure on balance sheets, Vodafone and Aditya Birla Group-owned Idea Cellular got a shot in the arm as the Competition Commission of India approved their proposed merger this week.
The two companies expect the deal to be completed in 2018. The combined company will become the largest telecom operator in the country on the basis of subscriber base and will be able to strengthen its network offering across India.
Therefore, experts don't see any decline in competitive intensity any time soon.
“The predative strategy to capture telecom space is quite aggressive and highly disruptive,” said Jimeet Modi, CEO, Samco Securities.
The pricing and launch of a phone at effective zero cost by Jio will certainly impact and erode long-term profitability of telecom companies, he added.
Reliance Jio has invested over Rs 1.7 lakh crore in the last six years. So, while rivals bleed, how long can Jio sustain its aggressive push with cheap data and free phone?
Jio began charging customers from April this year and this will help it boost revenues and reduce cash flow uncertainties in the telecom business, while its pricing still remaining aggressive will help it continue to add more subscribers, say analysts.
Jio already has 125 million customers and the launch of Jio phone will help it capture another 100 million in the next two years, feels Sanjay Chawla, telecom analyst at JM Financial.
“In terms of revenue accretion, accumulation of 100 million Jio phone subscribers by March 2019, may amount to Rs 4,000 crore of quarterly revenues, which when combined with smartphone revenues (estimated at Rs 5,500-6,500 crore per quarter), may take Jio’s annualised mobile revenues to Rs 4,000 crore sometime in early FY2020,” said Chawla.
The Jio phone was launched with a dedicated Rs 153 plan offering free voice calls and sms and unlimited 4G internet (high-speeds up to 500MB per day after which speeds drop).
Chawla estimates, Jio would require customers to make four recharges of Rs 153 per year for the Jio phone offer to be NPV (net present value) neutral over a 36 month customer life cycle. At a maximum of 12 recharges a year, the deal would be NPV positive to the tune of Rs 1,123 per subscriber.
Moreover, some like Fitch Ratings believe that launch of the Jio 4G feature phone will accelerate internet adoption in the country and should help reverse the recent decline in telecom industry revenue.
“The higher monthly tariffs that Jio is charging on this handset are likely to limit the impact on the revenue market share of incumbents such as Bharti Airtel. Incumbents might also see some benefits to the extent that Jio's strategy increases adoption of 4G and helps develop India's smartphone culture—raising data usage and average spending across the market,” said Nitin Soni, Director, Corporates, Fitch Ratings.
Fitch, however, maintained a “negative” outlook on the telecom sector as it expects Jio to continue rolling out offers to expand its subscriber base and incumbents to continue responding with price cuts and promotions.
