With the announcement of free voice services by Reliance Jio Infocomm Limited (RJIL), the Indian telecom market seems to be heading for interesting times. While the model has been welcomed by consumers, industry observers believe this is a shrewd pricing strategy on the part of operators. Industry experts discuss the viability of the free voice calling model in India, its impact on operator profitability and the global experience in this area.…
What is your opinion on free voice calling? Can this be a sustainable model for a country like India?
Puja Goyal, Consultant, Capitel Partners
Puja Goyal
Free voice calling is effectively not a free service but a restructuring of the pricing proposition for the end-consumer. The voice minutes are bundled in a package, for which the consumer pays irrespective of the actual usage. Hence, the free voice proposition is only a marketing strategy. It works well in a market like India, which is witnessing a declining trend in voice revenue share. There is negligible risk of excess usage of voice, as it has a relatively less elastic demand.
Hemant M. Joshi, TMT India Leader, Deloitte India
Hemant M. Joshi
India is still a major voice market for telecom players as 70-75 per cent of revenue comes from voice. The free voice business model uses voice over long term evolution (VoLTE)/voice over IP (VoIP) technology, which converts voice into data and transmits it as data. The model will be very successful from a customer perspective, but it will burn a deep hole in operator pockets as voice is a major revenue driver in India. The technology is still new in India and given the data network availability across the country, there may be many instances of call drops for VoLTE as the model requires seamless data network connectivity. Moreover, there are very limited handsets that provide VoLTE calling in India, thus limiting the service to a few users. Globally, only over-the-top (OTT) players provide free voice services, but at the cost of operators’ data network. India is the first market to provide free voice services through VoLTE.
Ashwinder Singh, Engagement Manager, Analysys Mason
Bharat Sachdeva, Consultant, Analysys Mason
Ashwinder Singh and Bharat Sachdeva
The concept of hard bundling, that is, making voice free and charging for data only, is a globally prevalent model. Operators in mature LTE markets such as the US and Korea are marketing voice calls as free. However, the cost of voice is built into the pack price. Given that IP-based VoLTE networks is much cheaper than the traditional circuit switched (CS) voice currently being offered by incumbent operators due to the better spectral efficiency of IP networks, low voice pricing could be sustainable. However, what is important is that operators should be able to maintain or increase their ARPU by making customers subscribe to high-end data packs, which will require improving the digital content ecosystem in India.
How will this proposition impact the industry’s profitability?
Puja Goyal
The free voice proposition may have a negative impact on the profitability of operators in the short term. However, the rapid increase in data usage will partly make up for the loss in direct voice revenue. Operators also need to focus on driving down unit costs through leveraging multiple technologies and efficient spectrum bands and through network optimisation to maintain sustainability.
Hemant M. Joshi
Profitability is likely to be affected as voice still accounts for 70-75 per cent of the total service revenue of operators in India. Operators have already invested a huge amount in spectrum and infrastructure. The data market is still in the initial phase of growth and it will take time to generate substantial revenue from data.
Ashwinder Singh and Bharat Sachdeva
In the short term (one to two years), we expect a limited impact on industry revenues and profitability. In the long term, we believe consolidation has to happen. In order to be profitable at such low prices per GB, operators will need to have a critical mass of traffic on their network, which, based on our analysis, translates into a revenue market share (RMS) of 17-18 per cent. To support the traffic at this RMS, an operator will need to invest more than Rs 75 billion per year in spectrum, network and operations, which only four or five large players can sustain.
What strategies can operators experiment with on the data side to accommodate free voice calling?
Puja Goyal
Increasing data usage is the key for operators to compensate for any loss arising from the pricing of mobile services. Therefore, promoting regional content, mobile video apps and innovative products such as HD voice/video are some of the focus areas on the product side for driving data growth. With improved networks, additional spectrum and efficient technologies, operators can enhance the customer experience and quality of service, leading to rapid growth in data usage. Also, operators need to accelerate data penetration beyond the metro and Tier 1 markets to gain from the increase in the volumes of data users.
Hemant M. Joshi
The free voice call business model makes use of data for service provisioning. As the industry is shifting towards data, it is expected to come up with innovative services for free voice.
- VoWi-Fi: Most operators in India are upgrading their technology to offer Wi-Fi services. Voice over Wi-Fi (VoWi-Fi) technology can help connect to high speed internet and operators can provide calling services on their Wi-Fi networks for a seamless connectivity experience. Users do not need an app to connect and will benefit from indoor coverage.
- Bundled services: Operators can provide bundled packs with both data and voice services.
- Video calls: Operators can provide attractive tariffs for video calling services.
Ashwinder Singh and Bharat Sachdeva
To stem the decline in traditional voice, operators have adopted multiple strategies:
- Hard bundling of traditional voice, VoLTE and VoIP minutes to remove the differentiation between CS, VoIP and VoLTE through seamless integration.
- Offering voice as a free service with data plans to customers, the cost of which is typically built into the data pack.
- Participating in VoIP markets through the launch of their own OTT apps. In addition, operators can look to have a larger play in the data market to compensate for the decline in voice. Typically, a larger data play requires operators to focus on:
- A dedicated content strategy, focused on providing original, high quality content to the masses, especially in vernacular languages. The content ecosystem in India for small screen consumption is largely underdeveloped, which presents a big opportunity for operators.
- A clear pricing strategy, focused on the segmentation of the customer base as per their consumption pattern, along with driving the adoption of data among non-users.
What has been the global experience in free voice calling services? What are the key lessons for India?
Puja Goyal
Most of the developed markets are offering voice services bundled with data. Globally, the decline in minutes of usage per user has been followed by a shift in the pricing structure to the bundling of voice minutes with data usage. A key lesson for Indian operators is to plan and prepare for the changing consumption pattern of users, and align technology deployment, spectrum assets, marketing and pricing accordingly, in order to serve customers better and enhance profitability.
Hemant M. Joshi
In global markets, free voice calls are typically provided by OTT players at the cost of operators’ data. OTT operators like Skype, Facebook and WhatsApp are providing voice and video services through operators’ data plans. Customers need to pay for data usage while using OTT services for calling purpose. For example, Skype in the UK offers calls from Skype to mobiles and landlines. To avail of these services, customers need to purchase Skype credit.
Meanwhile, some major players are offering rental and prepaid services on the VoLTE network. In the US, AT&T has 27 million active VoLTE subscribers and provides services such as Wi-Fi calling, video calls and advanced messaging services on the rich communication services platform. In the UK, EE, Three and O2 are providing 4G calling and VoLTE services on monthly rental plans and VoWi-Fi services are being developed by different operators to provide seamless connectivity. According to the GSMA, 150 mobile operators have launched HD voice services including 40 VoLTE deployments in 87 countries, while 111 operators are investing in VoLTE in 52 countries. India is the first market to provide free voice under VoLTE.
Ashwinder Singh and Bharat Sachdeva
Operators in mature LTE markets have been marketing traditional voice as free, as part of their data packs though the cost of voice is built into the pack pricing. In the US, AT&T, Verizon and T-mobile have adopted this strategy to preserve their ARPU and have been quite successful. In India, RJIL and some of the incumbent operators have launched free voice services along with their data plans, which are effectively quite similar except for the fact that RJIL is offering VoLTE-based voice. In sum, voice is getting commoditised globally and its share in mobile operator revenues has reduced to approximately 25 per cent in some mature LTE markets. India could expect a similar or more aggressive trend in the coming years.
