Though it has really stretched their bottom-lines, the latest quarter results for incumbent telcos are remarkable in terms of how data volumes have shot up in response to slashing of prices following RJio’s entry. In the case of Bharti Airtel, while per MB data realisations have more than halved sequentially, usage per customer just short of doubled in the June quarter. In the case of Idea, per MB realisations also more than halved, and usage rose 2.3 times. The strategy of matching RJio pricing has worked to retain 3G/4G customers—only customers with smart-phones can access the incumbents’ 3G/4G networks, the rest are on their older 2G networks where, by and large, tariffs have not fallen as steeply. The challenge posed by the Rs 1,500-Jio-VoLTE feature phones, however, is not as easily met by dropping prices.
There are, as a Kotak report points out, 210 million subscribers who, right now, pay Rs 140 per month to their telcos. These relatively low-end users could, then, be quite willing to subscribe to RJio’s Rs 153 unlimited-voice-0.5GB-per-day plan provided they buy the Jiophone since, without a VoLTE phone, they cannot be on its network. While low-end users on 2G networks will ask their service providers to match the RJio offer—if not, they will migrate to RJio—this may not be possible. Many incumbent telcos simply do not have the capacity on the 2G part of their networks to offer unlimited voice and it will get dramatically worse if they have to offer larger amounts of data as RJio does. To get a sense of how demand for voice/data changes as users can pay more or it is free, see the table—as subscribers move from Rs 140 per month to Rs 279, voice volumes rise from 367 minutes a month to 702, and data from 138 MB to 418 MB.
If a telco has 6.2MHz of 2G spectrum, it can typically service around 150 million subscribers with around 150,000 base stations; naturally, once the usage rises in a free-voice environment, these networks will find it difficult to deliver. The situation, naturally, differs from operator to operator—a Bharti Airtel, for instance, has 10MHz of spectrum for 2G in some circles and has seen its voice minutes rising from 105 billion minutes per month a year ago to 140 billion today. Based on the maximum traffic that can be carried by adding more software to existing base stations, these minutes can theoretically be doubled. Of course, once data usage rises, the amount of voice calls that can be serviced falls dramatically on 2G networks.
This is where 4G or LTE networks come in—VoLTE, which RJio boasts of, is nothing but the capacity to provide Voice over LTE, and Bharti Airtel, for instance, will be VoLTE by the end of the year. The capacity on these networks is almost infinite due to superior technology. If you take just Bharti, Vodafone, Idea and RJio, based on their current spectrum holdings and network configuration, they have a data capacity of 46 billion GB a year on their 4G networks. Even if you assume a 10GB usage per user per month, or around 5 times that on incumbent networks in the June quarter—RJio is reporting such data usage right now—the industry’s 200 million data subscribers use around half this capacity and VoLTE calls a tiny fraction of that.
As long as India had just around 350 million smart-phones, of which around 150 million are VoLTE-enabled, there were just that many people who could demand either free voice or generous amounts of data. With RJio planning to add 5 million Jiophones every week and copycat Jiophones likely to be in the market in a few months—albeit at Rs 2,300-2,500 price points vs RJio’s `1,500—India will have 500 million VoLTE phones by next July.
This will be the industry’s turning point since, with low-end customers able to switch to VoLTE, albeit via feature phones and not smart phones, even incumbent telcos will now be able to match RJio, should they want to. If the non-Jio phones cost Rs 2,500, however, chances are a smaller number of subscribers will buy them—yet, they will keep complaining as they compare their package with the ones offered by RJio. In which case, incumbent telcos need to find ways to help subsidise these VoLTE feature phones while continuously working with manufacturers on improving product features—if the same Jio phone is hooked to a TV, for instance, RJio charges double from the same consumer. Older telcos will also need to work on their entertainment/TV offerings since it is not just a dumb pipe the subscriber is buying, it is the whole end-to-end experience.