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Price Play: Operator strategies to enhance data usage and strengthen their market position

September 09, 2016
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By Akanksha Mahajan Marwah

Ensuring customer stickiness in a hyper competitive telecom market like India is a Herculean task for operators. The launch of mobile number portability has further empowered users, making operators more vulnerable to subscriber churn. India being a highly price-sensitive market, a play around tariffs has always been a key strategy for telecom operators to drive service uptake and stay ahead of competition. The market, over the years, has recorded multiple instances of direct and indirect tariff cuts by operators to get new customers on board, while increasing the usage of existing subscribers. For example, 3G services gathered steam only when the incumbents slashed their tariffs to notch up volumes.

In a similar attempt to drive 4G uptake, Bharti Airtel, Idea Cellular and Vodafone India have recently reduced the effective 4G data rates for their prepaid customers. Increasing the data usage on their networks is only one part of the story. Another objective of the tariff cuts is the operators’ underlying need to defend their broadband market share, which is under threat with Reliance Jio Infocomm Limited’s (RJIL) impending entry. RJIL is expected to adopt market disrupting strategies, which may drive away the incumbents’ potential data customers. Therefore, the incumbents’ latest pricing strategies are seen as a preemptive move to ring-fence their existing data customers and attract potential ones. Bharti Airtel and Idea Cellular have introduced direct and indirect tariff cuts of over 50 per cent to offer more data benefits to their prepaid users, who constitute over 90 per cent of the total subscriber base and are more likely to switch operators than their post-paid counterparts. Interestingly, RJIL, in its maiden plan (which is likely to be called Freedom), will reportedly offer free voice services bundled with data, priced at least 25 per cent lower than the incumbents’ offerings.

Offering more for less

In the majority of the cases, operators are offering bonus data usage at the same price. For instance, in its Rs 655 4G/3G monthly recharge pack, Bharti Airtel is now offering 5 GB of data as against the 3 GB offered earlier, while for the Rs 455 4G/3G pack, it is offering 3 GB data as against 2 GB earlier. In the 4G/3G new monthly pack, Airtel is offering 40-67 per cent more data. Meanwhile, Idea users will get 5 GB of 4G/3G data at Rs 649, about 67 per cent more value than the 3 GB data earlier. Further, Idea’s 2 GB data is now priced at Rs 349, as against the earlier price of Rs 449.

These effective rate cuts have been introduced for sachet packs as well. Sachet schemes, which are basically voice/data packs with smaller value and limited validity, were instrumental in achieving a major jump in voice calls two decades back. Operators are now following the same strategy to make mobile internet more affordable.

As such, Idea’s Rs 22, 4G/3G data pack, which earlier offered 65 MB of data for three days, will now offer 90 MB. Airtel is also offering 32-48 per cent more data without any price change in the sachet category. While the sachet data pack strategy is aimed at bringing first-time internet users on board, the price strategy for monthly packs is aimed at delivering higher value for money to existing internet users to ensure customer stickiness.

Further, offering high data usage at the original prices will help operators expand usage without making any significant impact on their existing ARPU or headline revenue. ARPU is a crucial metric for operators and they are ready to offer additional bandwidth to high-paying users even though this may reduce their returns from data in the short term. The realisation per MB of data is expected to come down from about 20 paise to less than 15 paise.

Defending market shares

A similar trend of declining tariffs was seen when new 2G operators entered the market in 2009-10 and the incumbent operators were forced to match the former’s price to prevent an exodus of users from their networks. However, the move took a huge toll on their bottom lines. Despite this, incumbents have no alternative but to play with prices when a new player enters a highly competitive and price-sensitive market like India. Moreover, when the new player is Mukesh Ambani’s RJIL, service affordability will be a key differentiator.

RJIL had initially offered 4G SIM cards bundled with its LYF smartphones, priced at as low as Rs 2,999. It is now offering services with Samsung phones and may expand these to include iPhones in the near future. Further, the company is offering 90 days of free unlimited 4G mobile internet and voice calling with its SIM cards.

Conclusion

In the past one year, the incumbent operators have spent huge amounts of money on greenfield 4G roll-outs and the expansion of 3G services. It is, therefore, imperative for them to safeguard these investments and earn higher returns. The recent revisions in tariff structures are a step in this direction – an attempt to grow their user base while defending their market position ahead of RJIL’s entry.

 
 
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