Indian telecom has gone through a turbulent few years. Reliance Industries Chairman Mukesh Ambani announced the launch of Reliance Jio at the company’s 42ndAnnual General Meeting in September 2016. With an offering of free voice calls and tariff plans as low as Rs 149 per month, Ambani’s announcements caught the attention of the nation which still had immense scope for penetration of data and smartphones.
In today's post, we look at the impact of the move on competition, the other players in the space who benefitted from the move, and why it is important to improve the health of our telecom firms.
What happened to India's Telecom incumbents
Well-established telecom players like Bharti Airtel, Vodafone India, and Idea Cellular struggled to match up with Jio’s low tariffs while trying to hold on to profitability. The next few years saw the exit of Reliance Communications from the industry and the merger of Idea Cellular and Vodafone India in a bid to survive in which was now a highly competitive industry.
While on one hand, telcos struggled to stay afloat, the steep fall in prices led to a drastic increase in data usage across the country. Coupled with the influx of low range Chinese smartphones, an increasing number of people accessed the internet. As per the data from the Telecom Regulatory Authority of India (TRAI), the number of broadband subscribers for mobile devices when Reliance Jio launched in September 2016 stood at 173.87 million. This number has increased exponentially by 270% to 642.19 million in December 2019.
Who benefitted from the cheap data bonanza
Although the huge consumption of cheap data drained the coffers of telcos, smartphone companies saw a good run in India. The companies that gained the most from India’s surge in smartphone usage are Chinese smartphone makers Xiaomi, Vivo, and Oppo who provided a wide range of products at every price range. In Q4 of 2016, Xiaomi, Vivo & Oppo enjoyed 9%, 10%, and 8% market share respectively as per market research company Counterpoint Research. The market share of these companies in the Indian market has increased to 27% for Xiaomi, 21% for Vivo and 12% for Oppo as of Q4 2019 according to Counterpoint Research. South Korean giant Samsung, on the other hand, lost out to the Chinese players in market share. Its market share fell from 24% in Q4 2016 to 19% in Q4 2019 as per Counterpoint Research reports. This fall can be mainly attributed to Samsung’s inability to offer more at lower prices like its Chinese competitors, which is what the Indian users wanted.
As data prices did a free fall, social media usage too surged in India. Whatsapp, Facebook, and the new Chinese video-sharing app TikTok are being used more widely than ever. The TikTok videos emerging from all parts of India, rural or urban, only confirm the widespread access to smartphones and data. Digital payments via credit/debit cards, payment wallets and UPI transactions too picked pace with the help of data reach and a push from the demonetization of Rs. 1,000 and Rs. 500 currency notes in 2016. As per the data from the National Payments Corporation of India, the volume of UPI transactions in February 2020 stands at 1,325.69 million, in September 2016 the volume was at a mere 0.093 million. UPI apps like Google Pay and PhonePe see the highest volumes of transactions as more people opt for these apps as their preferred mode of payments.
Why you should care about the health of India's telecom giants
One could only hope that the telecom sector would see its golden days with such a humungous increase in data usage on multiple platforms. But, the Indian telecom industry instead is under threat of becoming a duopoly, especially after the Supreme Court’s verdict on the Adjusted Gross Revenue (AGR) dues to be paid by the telcos to the government. Vodafone Idea and Bharti Airtel together face a payment of Rs. 89,000 crores in AGR dues to be paid to the government. As Vodafone PLC and Vodafone India’s top executives have maintained, this is now a question of survival for Vodafone Idea. The company reported a net loss of Rs. 6,438.8 crores in Q3 of FY20 is in talks with the government for relief, along with Bharti Airtel chief Sunil Mittal. In this dire situation, any headway in floor pricing talks by the Department of Telecom might be too little and too late.
The situation further puts the future of Indian telecom in disarray. While the hope was to increase spending towards strengthening their networks and investing in the future – 5G, the capacity of telcos to make large scale investments seems unclear while they struggle to hold on to subscribers. As much as the government is pushing for spectrum auctions early this year, telcos are not willing to pick the 100 MHz spectrum at the high prices quoted by the government. Any headway on 5G in India seems unlikely until the Government and telecom companies reach a consensus on the spectrum pricing.
Having healthy competition in the space, and a smooth transition to 5G is important for both consumers and corporates in the country. And one can only hope that steps are taken to ameliorate the pain of a sector that adds so much value to the Indian populace.
We earn our revenue primarily from GSN Invest++ where we analyze one firm every week and have a premium community discussing market dynamics. If you like our analysis, do check it out. GSN Invest++
About the author - The post is written by our EZPP partner Priyanka Iyer with relevant edits and changes by the editorial team. Priyanka is a graduate of the Asian College of Journalism and has worked with BTVI & CNBC-TV18.