Reliance Jio’s fight with other telcos will boost the Digital India agenda
The competition from Jio is very stiff, and has most of the existing telecom companies on their knees. With the government’s emphasis on digital transactions from mobile wallets such as BHIM, to cashless ways of money disbursements, an increase in data users in villages could change the industry’s dynamics.india Updated: Mar 02, 2017 17:36 IST
Chairman of Reliance Industries Mukesh Ambani would have been delighted to see Jaisalmer’s tourist guide Sahil.
Taking advantage of Reliance Jio freebies, Sahil Khan has been using his mobile phone to further his business. He has made a short video of sights at the desert city, which he uses to woo foreign travelers.
Before Jio came out with its offer, Sahil did not have more than Rs 100 to spend on mobile bills with his business season running only during the four months of winter and spring.
The city draws a lot of French tourists making language a problem for the young guide. But Sahil now has the power of internet and the magic of Google Translate to help him.
But the windfall is not going to last forever. The company has said it will start charging users a minimum of Rs 149 after Jio’s free scheme ends on March 31.
By then, Ambani and his ilk hope that the market will change – more users will be hooked to the internet, and the average revenue per user (ARPU) will go up. During its launch, Ambani announced that calls will always be free on Jio, subscribers will only have to pay for internet irrespective of whether he uses it or not.
And the biggest beneficiary of this is Prime Minister Narendra Modi’s Digital India campaign, which aims to spread internet literacy even in the remotest parts of the country. India adds 15,000 new internet users, everyday.
According to Kotak Institutional Equities, 61% of the telecom users in India spend less than Rs 100 every month on mobile services, on an average – most of them do not use the internet.
That’s changing. Users spending less than Rs 100 a month, now spend 9.8% of the money on data, though the larger 85.6% is spent on voice calls. 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 last year.
Cisco in its annual report in 2015 had predicted that spurred by mobile data usage, internet traffic will grow at 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 democratisation 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 the red.
The competition from Jio is very stiff, and has most of the existing telecom companies on their 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.
But Additional secretary to the Indian government Arun Kumar disagrees: “Just when you would think mobile internet usage charges are rising, it will be pulled down, that’s the beauty of the technology domain. It disrupts conventional economic sense. New innovation will always cannibalise the old technology.”
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.
“By 2020, the internet is expected to penetrate deeper in the hinterlands of the country, creating more opportunities for everyone,” said R Chandrashekhar, president, Nasscom.
‘The Future of internet in India’ report the Nasscom prepared in association with Akamai Technologies Inc says that 730 million internet users are expected in India 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 don’t want to miss India’s new internet users,” said Arun Kumar.