Reliance Jio’s fight with other telcos could be rural India’s gain
India adds 15,000 new internet users, everyday. And telcos are bleeding in the fight to capture the new users, but biggest beneficiary of this is Prime Minister Narendra Modi’s Digital India campaign, which aims to provide internet literacy even in the remotest parts of the country.business Updated: Mar 03, 2017 14:12 IST
Mukesh Ambani, chairman of Reliance Industries, which owns Reliance Jio, would have loved to watch Sanjay Thakur, the groundnut vendor standing at the corner of a crossing in Ranchi, looking over his son. Thakur is illiterate, but his son, who studies in sixth grade, is watching videos on his father’s phone.
Until a few months ago, things were different. Thakur spent Rs 80 to Rs 100 a month for voice calls, until he took up a Reliance Jio connection, which offers free internet and free voice, at least for now.
But, not for long – once Reliance Jio’s free scheme ends (on March 31), the company has said that it will charge a minimum of Rs 149. By then, Ambani and his kin hope that the market will change -- more users will be hooked to use the internet, and the average revenue per user (ARPU) will go up. During its launch, Mukesh announced that calls will always be free on Jio, subscribers will have to pay for internet whether he uses it or not.
And the biggest beneficiary of this is Prime Minister Narendra Modi’s Digital India campaign, which aims to provide internet literacy even in the remotest parts of the country. India adds 15,000 new internet users, everyday.
Users spending less than Rs 100 a month, now spend 9.8% of money on data, though the larger 85.6% is spent are on voice calls. Result: data usage in the country has quadrupled, from 300 MB to 1.2GB, in six months since Jio launched its free services on September 5.
Cisco in its annual report in 2015 had predicted that spurred by mobile data usage, internet traffic will grow at a rate 33% annually in India. “And 90% of this data usage is through mobile phones,” said Ajay Kumar, additional secretary in the department of electronics and IT. Understandably, telecom operators are in a spree to capture new data users by luring them with free and cheap internet packs. The democratization of internet users has started in India, the stated focus of Digital India.
But the ensuing price war has resulted in falling profits, pushing telecom companies into red.
The competition from Jio is very stiff; and has most of the existing telecom companies on its knees. To take on Jio, Vodafone Group Plc’s Indian unit is in merger talks with Aditya Birla-promoted Idea Cellular Ltd. Vodafone Group had to write off 5 billion euros in its Indian business last year and defer a proposed share sale which will become irrelevant should the merger go through.
Idea has been pushed into the red, with losses of Rs 384 crore in the third quarter of 2016-2017. While Airtel’s profits have fallen 55% in the price war against Jio.
Telecom operators hope that there is light at the end of the tunnel. “Slowly, voice will become a free service, or a free bundled service. Operators will charge for a package, say for a certain gigabites of data,” said an executive with a large telecom operator.
“Given the way telecom companies are bleeding, we will have to wait for this war to be over for them to make any meaningful investment in telecom infrastructure,” said a government official who did not wish to be named. He added that during at the launch of Digital India in August 2014, it was clear that with internet penetration of just 20% in the country there is huge potential for investments and returns.
But the return on investment could mean higher mobile bills for rural India.
In villages, the ARPU is Rs 40-50. Once the data pack regime kicks-in, sachet recharges will be a top up to the monthly minimum pack. This means that a villager, who pays Rs 40 for just making calls, will have to pay a minimum of Rs 150 per month for using internet on his phone, explains an executive with a large operator.
Albeit a little expensive, in the fight to hook new customers to data packs, private telcos will ride the infrastructure that government is building to make India digital. While this saves the private companies from heavy investments it also ensures last-mile internet connectivity to the remotest part of India.
The Digital India campaign has not put a cap on the pricing of internet services, however, the government has thrown its weight behind digital transactions from mobile wallets such as BHIM, to cashless ways of money disbursements. That will also lead to increase in data users in villages.
Nasscom’s “The Future of internet in India” report in association with Akamai Technologies Inc. says that India will have 730 million internet users by 2020, 75% of the new users will be from rural areas.
“Since major adoption will come from rural India, it will incentivise private telecom players to spend on rural infrastructure. They obviously dont want to miss India’s new internet users,” said Arun Kumar.