New Delhi: India’s largest telco Bharti Airtel Ltd will likely reduce tariffs further as it looks to take on Reliance Jio Infocomm Ltd.
Gopal Vittal, chief executive of Airtel, admitted that Jio’s strategy is unprecedented, but that it may ultimately work to the advantage of the industry by causing consolidation and reducing the number of telcos from the current eight to four. Airtel, he added in an interview, was in a strong position.
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“We may have to adjust some pricing in the context of competitive intensity. When that happens what you will see is a lot more consumption, for which you need more capacity. There we are well positioned, because we have got the spectrum," Vittal said.
Jio launched its services on 5 September with the promise of free voice and cheap data services. Vittal believes Jio’s pricing plan will result in a “duality" that will see the decoupling of “voice and data", with some customers using just free voice services.
“Equally what will happen is in one part of the market, you will start seeing a movement towards what has happened in the western markets, which is bigger bundles—voice, data content packaged together. (There) we are well positioned and will bundle," Vittal said.
That’s exactly the direction the industry is taking, according to Amresh Nandan, research director at Gartner Inc. “Now that competition is turning to data, telcos are exploring bundling exactly in line with what developed countries went through."
In response to Jio (and in anticipation, before it launched) , incumbent telcos, including Airtel, reduced tariffs on data. Data volume has grown as a result, but realizations on data have dipped.
Airtel’s net profit for the quarter ended 30 September fell 4.9% to Rs1,460 crore as the firm cut data tariffs. Still, it expects the number of users to grow significantly, which will help it build economies of scale. To keep its margins intact, Airtel has identified at least 18 areas, which it calls “moments of truth" and “war on waste", Vittal explained.
“We have to reduce our operating costs by simplifying our processes, making our capital and capital expenditure much more efficient. We can really sweat the asset."
That’s the way to fight Jio, Vittal suggested.
“...I think the fact is that the only way to compete with a free service is by offering it free and we are not going to do that."