Bharti Airtel, India’s largest mobile operator, has announced that it will begin offering its 10 GB high-volume 4G data plans for less than the comparable 3G plans. The 33 percent cost differential between 4G and 3G plans—INR 999.00 (US $16.14) versus INR 1,499.00 (US $24.21)—is substantial. For the operator’s lower-volume data plans—1 GB, 4 GB and 5 GB—the prices of both 3G and 4G service are nearly identical. Bharti Airtel was the first operator to launch 4G service in India and now offers these services in 12 cities including Kolkata and Bangalore. The operator says it plans to expand this offer to Delhi soon. The announcement about pricing has sparked a response from competitor Reliance Communications (RCom), which unveiled an INR 999.00 (unlimited data plan with speeds of up to 14.7 Mbps. With regard to the plan, RCom chief executive Gurdeep Singh stated that customers could download “hundreds of GBs for INR 999.00 without fear of bill shock at the end of the month.”
Both these moves appear aimed at locking in as many of the top tier data consumers as possible as a preemption of Reliance Jio’s 4G launch, which is expected in 2015. Reliance Jio’s introduction of the service should have a particularly large impact, since due to its purchase of Infotel in 2010, the operator is the only provider in India with the requisite spectrum to offer nationwide 4G service. That will be a strong value proposition for the country’s biggest spending consumers. As this launch grows closer, we expect Bharti Airtel, RCom and India’s many other operators to double down on this approach and include increasing volumes of 4G services at reduced prices.
The embrace of this strategy bodes ill for the long-term prospects of the Indian market. Operators there have consistently reported razor-thin margins and have struggled to build nationwide networks or even regional ones that can handle significant traffic. Further complicating matters is the fact that in the roughly four years since the launch of 3G services, none of the operators has been able to draw enough subscribers to make even their limited networks financially viable.
We at Tarifica appreciate the desire to move customers onto 4G plans and understand that in a country like India, which has significant economic inequality, locking the small group of high-spending consumers into service agreements is critical for an operator’s success. However, the course Indian operators are currently pursuing has the dual risks of leading to a total abandonment of 3G before it has gotten off the ground and permanently devaluing 4G by locking it into a cycle in which prices can only continue to go down. One need only look to the numerous European examples in which MNOs were pressured to encourage rapid 4G adoption and then found themselves in a position of ever-increasing infrastructure costs paired with constantly declining ARPU. Most industry observers, ourselves included, believe that operators in emerging markets have much better long-term prospects than their more-established peers in mature markets. These assumptions, however, could end up reversed if these operators insist on repeating the mistakes of the past—as appears to be the case in India.
The above item appeared in a recent issue of The Tarifica Alert, a weekly resource that analyzes noteworthy developments in the telecoms industry from around the world. To access all of the latest articles and issues or to speak with the research team: http://www.tarifica.com/contactus.aspx