The uptake of fixed broadband in India has been stunted in comparison to the global experience. Currently, India has a fixed broadband penetration of around 7 per cent, which is substantially lower than that in developed countries with 60 to 70 per cent penetration. However, this scenario has begun to change. Fibre roll-out is being prioritised, leading to a significant increase in broadband speeds, and players are moving to gain first-mover advantage in the unserved markets.
The latest and biggest development in the Indian telecom sector has been Reliance Jio Infocomm Limited’s (RJIL) announcement of its entry into the fixed broadband space in July 2018. Jio GigaFiber is a fibre-to-the-home broadband service, which claims to offer speeds up to 1 Gbps. The company plans to operate in 1,100 cities across the country and is targeting 50 million households, a figure almost thrice the country’s total current fixed line subscriber base. Besides a connection, the company will provide a router as well as a set-top box to view television. RJIL will provide regular television channels and a host of over-the-top (OTT) content through its many tie-ups with OTT players. Other features include smart home technology, which enables surveillance and remote monitoring of home appliances, digital shopping, gaming, video -conferencing, etc.
Trials have already been undertaken in many potential locations and registration for the service is under way since August 15, 2018. RJIL plans to undertake roll-out in a phased manner and locations will be prioritised on the basis of the number of registrations the company receives. While RJIL is yet to announce the pricing of plans, it has announced a 90-day free-of-cost preview offer, similar to the free-of-cost preview offer that it had launched for its mobile customers two years back, when it had made a dramatic entry into the Indian telecom space. Customers will receive 100 GB of free monthly data for three months at speeds of up to 100 Mbps. Further, RJIL has announced zero installation charges. Customers will be required to pay only a refundable security deposit of Rs 4,500 for an optical line terminal (OLT). Post the completion of the preview offer, customers will have to opt for prepaid plans to continue using the service.
RJIL’s foray into the fixed broadband space, not surprisingly, has set off alarm bells among the incumbents in anticipation of intense competition. A number of them are taking pre-emptive measures to enhance their offerings in order to minimise the customer churn rate. Nevertheless, the entry of RJIL reinforces the importance of the fixed broadband market, and is expected to provide the necessary fillip for the expansion and growth of the market.
Impact on the fixed broadband market
According to India Ratings and Research (Ind-Ra), RJIL is well positioned to leverage its pan-India optical fibre network to deploy services. However, the impact on the incumbents will depend on the geographical diversity of RJIL’s service, besides the current tariffs and offerings of the incumbents. Aggressive market penetration strategies will also adversely impact incumbents, as they have in the past when RJIL launched mobile services. However, Ind-Ra estimates that RJIL’s aggressive marketing and pricing strategies would lead to an overall expansion of the broadband market. RJIL’s ambitious plan to target 50 million households is achievable. The estimated market worth for 50 million households willbe in the range Rs 300 billion to Rs 360 billion, valued at the current monthly broadband tariff of Rs 500-Rs 600 per household.
Several incumbents have already modified their offerings in anticipation of RJIL’s aggressive pricing strategies. For instance, state-run Bharat Sanchar Nigam Limited, which accounts for approximately 53.08 per cent of the fixed broadband market at present, has modified its higher-end fibre broadband plans. The upgrades comprise an increase in both the fair usage policy (by up to four times of the original cap) and broadband data speeds.
Another key trend being seen in this space is the move towards offering discounts and freebies on packages which have half-yearly and yearly subscriptions. This initiative is aimed at locking in customers in order to survive the competition. For instance, ACT Fibernet has also revised its plans and is now offering lucrative discounts on plans valid for six months or a year. Customers of ACT are eligible for an additional 1,000 GB free data on any plan they choose, apart from the ACT basic plan. In addition, ACT is giving two months of free subscription to customers who opt for a 12-month subscription plan.
As for Bharti Airtel, it started extending its “unlimited data” feature to more cities shortly after RJIL began accepting registrations for Jio GigaFiber. The revised service benefits are now available across Hyderabad, Ahmedabad, Chandigarh, Delhi-NCR, Indore, Jamnagar, Kolkata and Mumbai. In addition, Airtel’s broadband plans come pre-bundled with benefits such as an Amazon Prime subscription and data rollover. However, these upgraded plans are only eligible for personal and non-commercial use, and not for commercial use.
Meanwhile, in a key strategic move, Bharti Airtel has announced the formation of an independent fibre company to better leverage the growing fibre opportunity. It will also lease out its fibre network to other players in the market. The telco is currently in the last stages of transferring its optical fibre cable (OFC) network to Telesonic Networks, a wholly owned subsidiary. The company runs 246,000 route km of OFC.
Impact on TV business
Although the average price of a cable TV connection compared to a good broadband connection is still relatively low, a recent survey conducted by the Bank of America Merrill Lynch revealed that 62 per cent of the respondents were willing to remove their cable TV connection, provided internet speeds improve and the prices of online content decrease. RJIL’s proposed offering of television services as a part of a single broadband connection is largely focused on tapping these users. RJIL’s move will significantly increase the intensity of competition among multiple system operators (MSOs), which will need to come out with new and innovative strategies to match up to RJIL’s offerings.
The OTT opportunity
The exponential rise in data consumption is largely being driven by the consumption of video content. Consequently, the forecast for OTT content providers remains extremely positive. The launch of Jio GigaFiber is a huge opportunity for them to reach out to the untapped audiences in smaller towns and cities, besides increasing the volume of consumption of their existing consumers. Partnering with RJIL will also allow content providers to reap the benefits of economies of scale, which in turn will result in lower prices and augmented revenues.
Challenges and the way forward
Jio Gigafiber promises to deliver unprecedented bandwidths to its retail consumers. For this to become a reality, RJIL will need to focus on the effective implementation of last-mile connectivity, which has been a prominent challenge for MSOs so far.
In the short term, the launch of Jio GigaFiber is expected to increase the subscriber churn for incumbents as well as impact their ARPUs, hence dampening revenues. Intense competitive pressure may also force smaller players to consolidate to form larger and financially stronger entities, as has been the case of late in the telecom space. In the medium term though, incumbents are expected to benefit from the market expansion that will follow. In addition, this will bring the latest broadband technologies to the forefront and ensure faster roll-out across the country. Net, net, RJIL’s entry will spur the much-awaited growth in the fixed broadband sector, raise service quality and drive down price for consumers.