Has data reached inflection point?
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Mumbai: Data consumption per user increased to 900 megabytes (MB) in the first nine months of fiscal 2017 from 600MB in fiscal 2016, led by an expanding network, device and content ecosystem, boosting data adoption beyond large towns and cities, according to India Ratings and Research analysts. Video and social networking made up 60% of the entire traffic.
Softening data prices will lead to higher data adoption and increase in data volumes, the analysts added. They believe that the pricing strategy of Reliance Jio Infocomm Ltd (RJio) would be key to stabilization of the data pricing environment.
Jayanth Kolla, co-founder and partner at Convergence Catalyst, an Indian research and advisory firm, concurs that the data consumption spike in 2017 is due to RJio’s entry.
“RJio’s entry has enabled the Indian mass market consumers to start using mobile data to consume multimedia,” Kolla said, adding that the “biggest thing RJio has proven in the past six months is that its network is robust enough to handle heavy traffic (100 million free data users)... Now, as it readies to monetize its services (and, the number of paying users falls significantly below the number of free users), it can be assured of delivering better quality of services than the incumbents.”
According to Kolla, the voice-plus-data average revenue per user (ARPU) reported by Airtel in the past quarter was Rs298, while that of Idea was Rs270. With Jio’s monthly tariff of Rs303 starting April, the company’s tariff is already higher than the industry average. “Earlier, many analysts estimated the share of data revenues as a percentage of total mobile industry revenues to reach 33% and plateau; but post RJio’s launch, there is consensus in the industry that data revenues have a potential of contributing as high as 50% of total mobile operator revenues in India, in the next few years,” Kolla said.
Alok Shende, founder and director of Ascentius Insights, acknowledges that “data consumption in India is growing steadily” but argues that “the zero or near-zero price that consumers have enjoyed owing to the entry of a new operator have buoyed the sentiments on data consumption patterns”.
He likens Jio’s “zero-price offering” to an “impulse response function”, which will result in an increase in data usage in the short term but “in the long term, the effects of the zero-price offering will be completely negated”.
Shende notes that Jio’s own pricing at Rs303 per month is almost twice the current ARPU. “Which means that closer to 70-75% of the market is out of reach. In other words, Jio’s offer will be a tantalizing proposition for users who are already heavy data users. But for the data-deprived constituency, Jio’s offer is unlikely to help them cross the digital chasm,” Shende believes.
Jio, analysts note, is also exposed to technology risk on the adoption of voice over long term evolution (VoLTE). LTE is also popularly known as 4G.
The fact, though, is that it remains to be seen how many Jio users stick with it after it shifts to paid services. Moreover, while the last day for applying for a one-time Jio Prime membership was 31 March, the company has extended it to 15 April.
RJio is offering a few plans—the most popular one being a monthly unlimited scheme that has bundled voice, data, SMS and apps—for Rs303. Jio Prime members, according to the company website, will get this offer for a year. As of 3 April, a Jio spokesperson pegged the company’s “prime” subscribers at 72 million, making it the largest mobile broadband services company in the country. Bharti Airtel had a mobile broadband subscriber base of 37.7 million in December 2016—about 14% of its total mobile services customer base.
A Jio executive, who did not want to be named, said on condition of anonymity that the figure had crossed 85 million, a number that does not augur well for the incumbents.
According to a 3 April report by ICICI Securities, the reason Jio extended its ‘Prime’ member enrolment date, despite adding 72 million subscribers in March, may be aimed at upgrading subscribers (who have opted for Rs149 plan) to at least Rs303. “However, there is no guarantee that these subs would stick to higher ARPU plans for subsequent recharges,” the report said.
Affordable smartphones, especially in rural areas, will be the next trigger for data growth.
More than 400 million feature phones were sold globally in 2016 even as smartphone market growth slowed down 3% year-on-year, according to a 21 March report by Counterpoint Research.
The firm, however, predicts the rise of 4G-capable feature phones with the core value proposition being VoLTE calls and moving the users to the cost-efficient 4G networks. Counterpoint Research estimates that close to 60 million units of 4G-capable feature phones could ship this year globally—from almost one million units last year—with India potentially contributing to almost half of that this year. “Close to 200 million 4G-feature phones would be potentially sold in India in the next five years,” the report forecast.
On Bharti Airtel’s earnings call for the quarter to December, Gopal Vittal, managing director and chief executive officer (India), noted that “...in the long-term, as this market upgrades from feature phones to smartphones, you will start seeing more and more spectrum being deployed for high-speed broadband. And a day may come where some networks may shut down. For example, in Singapore, you are seeing a shutdown of the GSM network. In Japan, they have shut down the 2G network. In Europe, some operators are talking about shutting down 3G networks. Now, the good news for us is that whatever spectrum we have, we could use across technologies, and all the radio that we are investing in is technology-agnostic. So all the new radios that are coming in can run 3G or 4G, and so at the flick of a button, with software upgrades, we can actually move from one technology to the other.”