It seems to be deja vu all over again. In July 2003, Reliance Infocomm shook up the Indian mobile market with the Monsoon Hungama offer – a mobile phone and a post-paid connection for just Rs 501. The impact was immediate. The Indian mobile subscriber base doubled from 15.1 million (June 2003) to 30.6 million (July 2004). Now,13 years later, as Mukesh Ambani-owned Reliance Jio Infocomm is all set to shake up the rather mature Indian telecom market, the battle is for data, not voice.
So what can one expect over the next few weeks? A quick look at what happened in 2003 is a good way to foresee what one can expect this time round.
When Reliance Infocomm entered the market in 2003, voice revenue per minute (RPM) was declining, quite like data realisation per MB is falling now. The aggressive pricing by Reliance Infocomm led to voice RPM crashing from 150 paise in Q3 FY2004 to 70 paise by Q3 FY2007. While the RPM went down, it was compensated for by total minutes of usage rising at a CAGR of 100% over FY2003-2008.
[related-post]
Data is in a similar situation now. Over the past couple of years, data realisation per MB for Bharti Airtel has fallen 20% from 28.38 paise (Mar 2014) to 22.87 paise (Mar 2016). That number should fall further and faster once Jio starts offering services. According to a UBS report, Airtel and Idea could see data yields compress by 15% during FY2017, followed by 14% in FY2018 and 13% in FY2019. However, like in 2003, it expects a sharp increase in usage as tariffs fall or as people get more bandwidth for the same price. Already Bharti and Idea have offered extra bandwidth for the same price to their subscribers. UBS estimates that data volume growth would be of the order of 42% CAGR during FY2017-2020.
Over the last couple of years as operators started offering 3G and now 4G, data usage has increased. In the case of Bharti Airtel, it has increased from 277MB per user in Mar 2014 to 859MB in Mar 2016. As people get more bandwidth at the same price, usage should increase sharply. One of the constraints is that smartphone penetration in India is 16% against a global average of 44%, but that is expected to be in the region of 60% by 2021. As smartphone prices fall and penetration rises, data usage too will increase.
The immediate impact of rising data usage on incumbent operators would be a rise in capex commitments to meet the rising traffic needs. Already Airtel has launched Project Leap that looks to invest Rs 60,000 crore over a three-year period. To ensure that consumers get what they are paying for, it has launched an Open Network that allows users to check the quality of the network at their locations.
Before the launch of Reliance’s services, Airtel had upped its marketing budget to 13% of sales (2001-’03). Now too, Airtel has been aggressively marketing its 4G services. Expect bigger marketing budgets and airtime on TV over the next few months. But, the big challenge for the incumbents is that as Jio has a relatively empty network as of now speeds will be much faster. Second, getting to match Jio on the content offerings will be a tough task.
It’s a great time all over again for the Indian mobile consumer.
