RJIL’s entry into the telecom market in September 2016 unleashed an aggressive price war among telecom operators. Six months later, the industry’s operational metrics, business dynamics as well as competitive landscape do not look the same any more.
Profits have plunged drastically, revenues have nosedived and investments worth millions of dollars are in jeopardy. There is a new play around tariffs every day with operators resorting to a never-ending spiral of price alterations to arrest user churn and get more users on board.
Operators are slashing tariffs at the cost of profits, a strategy that cannot be sustained over the long term. The industry currently has around Rs 4.6 trillion of long-term debt and generates revenues of Rs 2 trillion annually. Every operator is under financial stress and is looking to raise additional funds. For that matter, RJIL too will be in a spot once the euphoria of free services subsides. With an initial investment of Rs 1,500 billion and an additional planned investment of Rs 300 billion, generating an ARPU of over Rs 200 will be extremely challenging.
The race to the top is bringing down returns on investments. This can only be corrected through a dramatic improvement in industry ARPUs, else the industry will have to wait for a long time to earn satisfactory returns. For the former to happen, operators would have to call a truce on the price wars, which looks extremely unlikely right now.
A favourable impact of the price war though is the overwhelming uptake of 4G services that the country is witnessing. India has added over 100 million 4G connections in the past six months, a development that could trigger growth in an otherwise sluggish mobile broadband market.