The entry of Reliance Jio set off a price war in India’s telecom market. The unlimited voice calls and data services offered at cheap prices have seen profits plunge for Airtel and Vodafone. The intense competition and pricing pressures are likely to continue. However, the two other key players are now preparing to face the challenges through new strategies. Here is how they plan to do it.
Focus on quality customers
The turmoil after Jio’s entry in 2016 led to a pile up of huge debt for existing telecom players and triggered consolidation, leaving three key players — Vodafone Idea, Bharti Airtel and Reliance Jio — to compete. Both Vodafone Idea and Bharti Airtel have since been having a tough time holding on to their subscribers and maintaining ARPU — the average revenue per user, a metric that measures the amount of money generated from an individual customer. Bharti Airtel’s ARPU, which stood at ₹196 in June 2016, declined to ₹104 by December 2018, as the company reduced rates to fight the price war.
Similarly, Idea Cellular in June 2016, before the merger with Vodafone India, had an ARPU of ₹175 which fell to ₹89 in December 2018. However, the two players — Bharti Airtel and Vodafone Idea, now have a strategy to fight out Reliance Jio. They have decided to focus on fewer and better-paying customers to improve revenue (for Jio, mostly customers on low-value plans are the target).
Both Airtel and Vodafone Idea introduced minimum recharge plans and increased their retail tariffs to wean out the non-paying customers. Since the March 2019 quarter, the ARPU of both the companies have increased. In the recent June quarter, Airtel’s ARPU grew 23 per cent y-o-y to ₹129 and for Vodafone Idea it grew 17 per cent y-o-y to ₹108.
Airtel and Vodafone Idea are also providing various offers and deals to retain quality customers and attract new subscribers. Airtel has created a loyalty programme — Airtel Thanks. This programme, launched in September 2018, offers rewards, perks and privileges. For instance, the perks and privileges include Amazon Prime membership, access to Netflix and exclusive content from ZEE6, HOOQ and Eros Now, along with Norton mobile security subscription. These offers are available across the company’s services — pre-paid, postpaid and broadband. This is expected to not only increase data consumption but also bring new subscribers.
Vodafone Idea too has been offering benefits, in terms of video streaming, access to OTT platforms such as Amazon Prime and Play.
Playing on demand
With players offering more data at rock-bottom prices, India’s data consumption has sky-rocketed in recent years. It has moved up from 278 MB (megabytes) in March 2015, to 9.06 GB (gigabytes), in March 2019, as per TRAI data. To monetise the increasing demand for data and attract those buying it to opt for premium plans, Airtel plans to shut down 3G network across all circles by the end of FY20. This is intended to free up network, ensure better capacity for 4G usage, and boost its ARPU.
Airtel has seen an increase in its data consumption per customer per month — from 7.8 GB in June 2018, it stands at 11.9 GB in the latest June quarter. This is higher than Jio’s data consumption of 11.4 GB.
Pressure to continue
As Jio is unlikely to increase its tariffs, the pricing pressure is only set to continue. This will not only erode the subscriber base of the other telcos but also hamper their ARPU growth. As mobile services (includes voice and data) account for majority of revenue to the telecom companies, they have to ramp up deals and offerings to taken on the competition and retain their customers. This is particularly important for Vodafone Idea as over 80 per cent of its revenue is from mobile services.
Bharti Airtel may handle it better. The company derives 50 per cent of its revenue from other segments including Airtel business (communication and data services to businesses, government and other enterprises), home services (landline and broadband connection), DTH, and tower infrastructure. Mobile services account for the remaining 50 per cent of Airtel’s business.
However, now, the launch of Jio Fiber — which offers landline and broadband services, free TV, DTH connection and free OTT (over the top) connection (Jio TV, Jio Cinema), could be a fresh blow to Bharti Airtel’s businesses including home services and DTH services.