Home >companies >Why Airtel is pushing ahead with Airtel Zero

New Delhi: Bharti Airtel Ltd chief executive Gopal Vittal explained in a memo to employees last month why he was pushing ahead with Airtel Zero, the controversial plan to offer users free access to certain apps that critics claim violates the net neutrality principle.

After all, the more the number of users that the company can attract, the more money it can charge companies for access to these customers.

The idea behind the effort is to beef up the company’s ability to charge for data usage. Reason: As business from voice start to plateau, data is the next source of revenue, a trend that is already visible and the company needs to do everything it can to safeguard that potential.

Over the past four years, Airtel has seen its revenue from data surge from 4.1% of mobile services revenue at the end of the quarter ended March 2012 to 17.6% for the quarter to March 2015.

Revenue from voice during this period has remained little changed as the pace of addition of new users is slowing down and may face further erosion because of applications such as Skype and Viber that allow users to make free calls. Such applications are commonly referred to as OTT (Over The Top apps).

“Adoption in wireless data on most occasions globally has resulted in cannibalization of voice and SMS," said Rajiv Sharma, an analyst at HSBC Securities and Capital Markets in Mumbai in a 21 April report. “OTT services not only substitute for traditional telco services but also take a share of subscriber budgets."

Indian telcos, the report warns, need to be wary of a few potential developments that could further eat into their voice revenue, including launch of voice calling by OTT services such as WhatsApp, which has 70 million users in the country; and increasing rollout of Wi-fi services as those would encourage extensive use of OTT services.

Sharma warns that in India the trend has already started in enterprise businesses, which are seeing an increase in data usage even as voice revenues decline.

India had 254 million Internet users as of October, the latest data available. Of these, 235 million accessed the Internet through a mobile handset, said Deloitte Touche Tohmatsu India Pvt. Ltd in a 21 April report.

The growth in Internet users was seen in both rural and urban India, the report said.

While it took mobile voice services about 20 years to reach 80% of the market, with mobile as the first mode of access to the Internet for most Indians, data penetration is expected to reach the same levels as voice in about a quarter of the time it took voice services.

For Airtel, capturing the maximum share of the data wallet is more important now, as with higher adoption, tariffs too are expected to fall.

HSBC estimates that there will be a sharper-than-estimated decline in data tariffs in the next 8-12 quarters, a key risk for the company.

Airtel has faced severe backlash in the last few weeks for its Airtel Zero plans.

In an unparalleled campaign, more than a million emails have been sent to the country’s telecom regulator, asking it to safeguard Internet neutrality.

The government is currently in the process of firming up its policy for Net neutrality in the country.

Net neutrality proponents argue that not all companies can compete at the same level, especially start-ups against established firms with deep pockets that can pay for preferential access.

And that there’s nothing stopping Airtel from putting together its own OTT app and pushing that on its network, while restricting bandwidth for the competition.

“The telcos are already making money from providing Internet, which is seeing phenomenal growth in India," said Nikhil Pahwa, editor and publisher Medianama.com, a technology news website. “Now if they also expect OTTs to pay, which would get passed on to the consumer, it would mean double charging the consumer for the same service, since the telcos get paid to carry the data."

He added, “Telecom operators like Airtel already provide video and music, among other things, as mobile value-added service. This would mean that OTT applications that provide video and music are also competitors. If you look at it, anything can be called a competing OTT."

To be sure, this is not Airtel’s first attempt at tweaking the pricing model of its data-based services.

In December, Airtel offered discounted data packs, that excluded VoIP (Voice over IP) services, essentially differentially charging Internet users for different services. But while it yielded to pressure at the time and withdrew that plan on the grounds that the telecom regulator was going to start a consultation on regulating OTTs, this time the company is sticking to its guns.

Vodafone, the No. 2 market leader after Airtel, has said that it will wait for the government’s policy to make public its own plans.

Sunil Sood, managing director of Vodafone India, said, “It’s (zero rating) a form of sampling to drive more usage. (It’s) Just a pricing plan that exists for every product, to incentivize usage."

Vittal, in his memo, denied that his plans were discriminatory and said they allow anyone to come on board.

“When a company selling an insurance product enrols into the toll-free voice platform, customers who call the number are not charged but when they call a normal number they are charged," Vittal wrote. “We are simply taking the same concept of toll-free voice to the world of data. As a result, it is for the application developer and their customer to decide how data charges will be paid for."

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