It is no longer a one-sided contest in the Indian telecom arena. The era of Reliance Jio’s overt dominance seems to be coming to an end. The operator is now in close competition with Bharti Airtel. The past year has witnessed a resurgence for Airtel, which has overtaken Jio on several fundamental parameters such as subscriber additions and ARPUs.
While Jio continues to lead the Indian telecom market with over 410 million subscribers (Airtel comes second with 344 million users), Airtel has expanded its lead significantly in terms of active subscribers. As per TRAI data, as of March 2021, Airtel’s active user share stood at 34.6 per cent (with an active user base of 344 million), as against Jio’s 33.4 per cent (with an active user base of 332 million).
Moreover, despite its higher user base, Jio’s ARPUs continue to be lower than Airtel’s. This is because a large part of its user base comprises low-paying subscribers, who use Jio as a second phone for cheaper calls and, therefore, subscriber additions do not add to its revenue or profit in a big way. According to a report by Motilal Oswal, Airtel’s ARPU on March 31, 2020 was only Rs 5 more than that of Jio; by March 31, 2021, that difference widened to Rs 20, with Airtel’s ARPU standing at Rs 158 and Jio’s at Rs 138. The biggest upside for Airtel is its post-paid customer base, which is high-spending and extremely sticky. Airtel has held on to this section of its user base effectively, say analysts. The post-paid segment contributes 15-20 per cent of Airtel’s revenues. Although Jio’s base post-paid plan has been priced 60 per cent lower than Airtel’s entry-level plan for over two years, the rate of churn in Airtel has been extremely low. In fact, the telco’s post-paid customer base has increased marginally over the past two years.
Of course, while Airtel is steadily getting its mojo back, it will still not be easy for it to catch up with Jio. For one, Jio comes with deep pockets and virtually zero debt. Incurring major capex is not as much of a challenge for Jio as it is for Airtel, which still sits on a huge pile of debt (Rs 1.48 trillion as of March 31, 2021). Second, Jio’s market valuation of $67 billion, based on recent stake sales, is much higher than Airtel’s Indian mobile business at $42 billion. That said, the earnings before interest, taxes, depreciation and amortisation gap between the two operators is now down to 28 per cent, from over 100 per cent at one point in the past. Third, Jio does not have the burden of legacy 2G and 3G networks. It has the most advanced next-generation technology, which definitely gives it an edge over its rivals. Last, and most important, Jio has not become complacent even after almost five years of existence. It continues to be as aggressive as it was in the initial days and its proclivity for disruptive pricing still exists. Earlier this year, the company launched JioPhone 2, which helped in boosting its subscriber numbers. Now, JioFiber Postpaid is finally here, providing users with home fibre broadband services on a post-payment basis, a first for India’s fibre broadband segment. The upcoming launch of a low-cost smartphone is further likely to help Jio gain subscribers.
Interestingly, while the competition between the two operators is keen, it is not as bitter as it had been in 2016. In fact, Jio and Airtel recently signed a spectrum trading agreement, the first of its kind between the two rivals (see box).
Pricing is no longer the centrepiece of the competition between the two companies, with quality of service, network coverage, user experience and digital offerings emerging as the key areas of contention. The telcos are now focusing on newer revenue streams, over and beyond their traditional offerings, and competition is heating up in each of these segments.
New war zones
Over the past two to three years, the digital space has emerged as the new battlefield for telcos, with Jio investing heavily in expanding its bouquet of digital services. Jio houses most of Reliance Industries Limited’s (RIL) Rs 13 trillion digital businesses. In 2020, the telco secured investments of over Rs 1.5 trillion from leading global investors and tech companies. It has built a huge presence in the digital space, launching more than 30 apps for both consumers and partner ecosystems since its inception, across the areas of music, entertainment, media, edtech and e-commerce. Meanwhile, Airtel is still taking measured steps to explore this space. Although some of its digital offerings existed even before Jio’s entry, it is only recently that the telco has started generating meaningful revenue from its digital offerings, particularly entertainment and financial services.
Then, there is the large enterprise B2B market for tech solutions that both Airtel and Jio are eyeing. Airtel is a clear winner here, with a market share of 31 per cent as of December 2020, as per Frost & Sullivan estimates. The enterprise segment makes a double-digit contribution to Airtel’s overall revenue, the highest in the industry. Over the past few months, Airtel has further strengthened its enterprise offerings beyond communications and cloud services to provide security and customer service solutions through various partnerships. This includes the launch of Airtel IQ, an enterprise communication focused omnichannel solution for businesses, and more recently, Airtel IoT, an integrated platform preparing enterprises for the era of connected things.
Jio’s strategy has not been very clear as far as the large enterprise market is concerned. That said, the telco might steal a march on its rival when it comes to micro, small and medium enterprises (MSMEs). There are about 58 million MSMEs in India, the majority of which remain highly underdigitalised or undigitalised. The ongoing pandemic has accelerated the need and willingness for digital transformation amongst MSMEs and analysts see this sector as a key revenue generator for telcos post-Covid.
Given Jio’s strategy of disruptive pricing for entry into any new segment, the price-conscious MSMEs are more likely to adopt its solutions. At a recent press briefing on the launch of an integrated technology service for MSMEs, Akash Ambani, director, Jio, stated that a micro and small business spends between Rs 15,000 and Rs 20,000 per month on connectivity, productivity and automation tools. Jio will provide enterprise-grade fibre connectivity and digital solutions to small businesses for less than one-tenth the cost, starting at under Rs 1,000 per month.
According to Ankit Jain, assistant vice-president, ICRA, MSMEs present a volumes business, and Airtel’s premium enterprise presence need not have the same perception in this market. Jio already has a presence in the retail sector. So, when both Airtel and Jio seek to offer cloud and networking solutions to the MSME market, they will be judged on the same economies of scale.
Next up is the telcos’ strategy for leveraging the fledgling start-up ecosystem in the country. Jio has partnered with more than 20 start-ups including C-Square, EasyGov, Embibe, Fynd, Grab, Haptik, Netradyne, Reverie, Saavn, SankhyaSutra, Nowfloats and Tesseract. RIL has also made significant investments in global tech start-ups such as Radisys Corp, Videonetics, Kai OS Technologies and SkyTran. The telco runs a start-up accelerator programme, which covers 5G, agritech, healthtech and edtech start-ups.
Airtel’s play in this space has been limited so far. Its Airtel Startup Accelerator has acquired stakes (mostly in the range of 10 per cent) in a few start-ups such as Waybeo, Vahan, Spectacom, Lattu Kids and Voicezen, but analysts feel a concerted strategy is lacking. According to them, unlike Jio, whose start-up investments fit well with its broader strategy across the digital ecosystem, Airtel’s startup investments are yet to contribute to the company’s digital vision in any meaningful way.
Run-up to 5G
Recently, in May 2021, the Department of Telecommunications allocated 5G trial spectrum in the 700 MHz, 3.2-3.6 GHz and 24.25-28.5 GHz bands to Airtel, Jio and Vodafone Idea to develop India-specific use cases. Airtel and Jio have reportedly initiated trials in New Delhi and Mumbai respectively. Jio’s Mumbai trials are being carried out using indigenously developed technology and equipment. It has, however, tied up with multinational vendors such as Ericsson, Nokia and Samsung for trials in New Delhi, Pune and Gujarat.
Meanwhile, Airtel is running the test in partnership with Ericsson. Recently, it joined forces with the Tata Group to compete with Jio’s made in India 5G technology. Airtel entered into a strategic partnership with the Tata Group to deploy open RAN-based 5G radio and core solutions, which the latter has developed locally. The indigenous solutions will be piloted in January 2022, and will significantly lower the cost of 5G deployment for Airtel.
In the spectrum auctions held in March 2021, both Jio and Airtel consolidated their holdings in the sub-GHz frequency bands, which will be critical for 5G service launch. While Jio acquired 133 MHz of additional spectrum, over and above its renewal spectrum in the 800 MHz band, Airtel bought 355.45 MHz of spectrum across sub-GHz frequency bands.
Customer interest in the technology seems to be high in India and it will be logical to conclude that telcos’ interest would remain high too. A recent study by Ericsson Consumer Lab shows that at least 40 million smartphone users in India could switch to the technology in the first year of implementation. In fact, 67 per cent of the people surveyed have expressed an intent to switch to 5G once it is available. Apart from this, the report states that consumers are willing to pay as much as 50 per cent more for 5G plans that come with digital services.
That being said, telcos need to address the massive requirement for small cells and fibre, on towers and underground, to support high speed, low latency 5G services. Such massive network modernisation will come at a huge cost. While Jio’s financial profile is comfortable and that of Bharti Airtel has improved in the past few quarters, the extent of capex that these telcos are willing to incur for 5G is yet to be seen.
In subscriber and financial terms, Jio continues to remain on top of the telecom pecking order. Airtel, though currently number two, is steadily narrowing the gap. The company is finally returning to the black after having suffered several big blows in recent years, first from Jio’s entry, then industry consolidation and then, the AGR crisis.
Analysts expect that an ARPU of Rs 200 can change Airtel’s fortunes. The telco is steadily moving towards that number by effectively tapping into its post-paid user base. According to telecom experts, with a premium and sticky customer base, Airtel can offer value to its digital partners in a way that Jio has not been able to unlock so far.
Airtel would do well to rework its digital asset monetisation strategy, one that Jio has aced, to make room for more funds to accumulate financial firepower for upcoming 5G services. The company has dish TV assets and fibre-based broadband infrastructure, all of which can be monetised to raise funds to retire its debt.
The telco is also betting big on its payments bank business. In an interview with a leading daily, Sunil Bharti Mittal, founder and chairperson of Bharti Enterprises, stated that he sees financial services as the next important area of business for telcos. Airtel clearly has an edge over Jio here, as its payments bank ranks amongst the top three in the country. Jio has a payments bank licence, but is largely missing from this space.
Net, net, in the near term, Jio will continue to retain its lead position. It will be interesting to see how Airtel, with its renewed vigour, deals with the competition. For now, it is game on!
By Akanksha Mahajan Marwah