RJIL’s recent announcement to extend its “free” services to customers till end-March 2017 has unleashed a new price war in the telecom sector. The incumbents have responded by modifying their offerings to provide free voice calls bundled with data plans at highly lucrative rates. The key attempt is to contain the churn among their prepaid users. Though low-paying, this segment accounts for over 95 per cent of the industry’s total subscriber base and is more susceptible to migrating to RJIL.
Price wars are not uncommon in the overcrowded Indian telecom market. Operators have often played with tariffs through cuts, discounts and freebies to attract price-sensitive customers and garner higher market share. This, in fact, had been a key strategy to help encourage 3G and 4G service adoption. However, there is no doubt about the impact such cuts have had on operator revenues and profitability in the past.
Not surprisingly, history seems set to repeat itself. If anything, the damage this time round may be more severe. Operators have made significant investments in 4G rollouts, network upgradation and spectrum acquisition, but these investments will give returns only over time. Operators are, moreover, sitting on a growing pile of debt and face high interest costs, which is denting their profits.
According to credit rating agency ICRA, RJIL’s free service offer is expected to reduce the incumbents’ revenues by 5-7 per cent over the next two quarters. The results for the quarter ended September 2016 are an indication of this, wherein the data realisations of Airtel, Vodafone and Idea dipped by 10-12 per cent.
With voice getting commoditised, operators will have to work on monetising their data offerings. They would need to remodel their existing customer retention strategies and map services to customer profiles.
While the current price war will result in a churn among price-sensitive customers, this may not be the case with high-paying post-paid users, who do not get swayed by merely the price factor. The incumbents stand to gain here as they have a strong foothold in this premium user segment. They would thus do well to focus on delivering a high quality service experience, thereby retaining an edge in this lucrative customer segment.
