The Indian Telecom space has shrunk into a 4-player market – with stronger private players, Airtel & Jio pitted against financially weaker players, Vodafone Idea (VI) & BSNL + MTNL in which the govt., incidentally, has stakes too, Other-players like Tata Teleservices, ACT, Tata Play, Hathway etc. continue to operate in significant yet specialized spaces. Jio meanwhile differentiates itself with Airtel via its Stand Alone (SA) 5G rollout, while Airtel’s NSA (Non-Stand Alone) rollout has led to cost optimization.
Even as the stronger players are competing in
the 5G space, VI continues to suffer a funding winter, impeding even its 4G
expansion drive. BSNL, meanwhile, has secured a GoM (Group of Ministers) clearance,
in May 2023, to issue a PO (Purchase Order) to TCS for supplying a home grown
4G equipment solution, manufactured by Tejas Networks, for 1 lakh sites &
managing the same over the next 10 years; 20% of the sites shall be deployed by
state run ITI. This “Made in India” initiative, if successful, along with
keeping Chinese gear manufacturers like Huawei & ZTE out of the Indian
market, is expected to aid national security.
But with 5G equipment of established players
like Nokia, Ericsson etc. being deployed by the Stronger 2 - even while the
weaker 2 are forced to focus only on 4G roll out - & with BSNL nudged to
deploy an untested 4G solution, it is safe to posit a shift in Market shares
due to the non-level playing field thus created.
The other notable data points regarding the
Telecom landscape are as follows:
1.
Return
on Equity (ROE) for even profitable telcos is in single digits demanding an increase
in tariffs. A steady increase towards an ARPU of Rs 300 - from under Rs 200 now
- appears to be WIP (Work in Progress).
2.
Telecom
penetration in Urban markets has crossed 130% while remaining shy of the 60%
mark in rural. Markets like Mumbai at
79% VLR (Visitor Location Register) – the lowest across the country – or Delhi
at 82% but with a high 272% telecom penetration should nudge Telcos into
evaluating quality gross adds to reduce Customer Acquisition Costs (CAC).
3.
Over
the period Mar 2022 to Mar 23, while Wireline subscriber nos. showed growth
across circles. wireless base has grown only across Metros & Category-C
circles, while degrowing across Category A & B circles. As growth in metros
is largely rotational churn – alluded to in point 2 above - focus on Category C
circles like Bihar, with a 55% telecom penetration is a logical strategy to be
implemented albeit after conducting a cost benefit analysis. Category B Circles
like UP (East & West) & MP with 66% penetration could find acquisition
focus.
4.
Of
the 114-crore wireless & around 3 cr. Indian wireline base, there are 84
cr. broad band customers – a large potential base waiting for innovative e-Commerce
& media disruptions.
5.
No
large System Integrators (SIs) or consulting companies work with a majority of Indian
SMBs (Small & Medium Businesses) – around 7 cr. in nos., accounting for
around 30% of GDP. They are, therefore, looking out for a trusted partner to
offer them bundled solutions & Telcos are uniquely positioned to make it
happen to accelerate digitalization.
6.
On
Broadband, Telcos are working on a capex light model of leaning on the Local
Cable Operators (LCOs) to achieve a faster rollout velocity.
7.
Device
shipments are slowing down because of the rise on prices & hence
replacement cycles are extending. This could impact 5G rollout plans.
Against such background, it would be
interesting to evaluate the strategies being pursued by different players.
Telco Wise Strategies:
Airtel has decided to focus on the following 5
vectors:
·
Focus on Quality Customers: The top 150 towns in the country
account for 40% of the Telecom market & over 80% of the Postpaid, Broadband
& Home convergence products & 95% of the B2B market. Airtel has also
identified 60,000 high potential villages of the total 6.4 lakh villages in
India, apart from the top 150 towns, for a disproportionate focus.
o Rural penetration continues with the
focus on smartphone share & not necessarily 2G customer acquisitions for
ARPU upsides.
o Increase in the minimum pricing plan
from Rs 99 to Rs 155 is as much an attempt at an ARPU increase as it is to accelerate SIM consolidation,
as multi sim customers also have wallet share constraints.
o 33% of the postpaid base has a 5G
handset against a 10% 5G penetration of the total base of 33.5 crores;
therefore, postpaid business shall ride on 5G apart from attracting customers
into the 599 “Family plan” to accelerate further.
o Faster rollout of new home passes &
convergence of broadband, linear content & Xstream – aggregating 20 of the
35 odd OTT apps under one plan. Airtel already has 3 crore homes, across these
150 cities, using one or more of its services.
o Omnichannel focus – across own
stores, installation teams, digital marketing focus - on these 150 cities, to drive
synergies in sim delivery or broadband & DTH installations. Expansion of
single seater own stores across key cities to reach the customer directly.
o Account management of top 500
businesses – mapping of key decision makers, understanding their needs &
solving their problems by bringing a full suite of solutions.
·
Obsession with customer experience: Drive down interactions across customer touch
points – store, call center, web, app, social media etc. – as every interaction
is interpreted as company’s fault over lack of understanding consumer needs
awaiting correction.
·
Build Digital Businesses: Airtel currently offers strong digital offerings
which include CPaaS, Airtel IQ, Cloud, SDWAN & Aps. Partnership with Axis
Bank & DMI Finance & API integration with the Airtel Thanks app
thereof, has helped Airtel Finance to offer instant loan disbursals, flexible
EMI options & credit cards to customers, through a proprietary ML & AI product
with an assured end-to-end post purchase digital experience management.
·
War on Waste:
o Network costs: 66,500 sites identified for
specific actions around energy, rental & reengineering costs reduction. NSA
(Non-Stand Alone) 5G technology has been an effective cost optimization strategy
– as it gives them a 30% higher coverage as compared to 5G SA (Stand Alone).
o
Sales cost: Identify
& address inefficient channels – up to a retailer level - with high costs
of gross addition or high churn.
o
Capex: Stopped
capacity investments on 4G as a 30% traffic offload observed on a site where 5G
has been launched.
·
Capex:
Investments on wiring up towers, data centers & home passes would continue
in the years ahead even while wireless 5G investments could tail off post this
year.
Vodafone Idea, on the contrary, faced with
severe funding headwinds, impeding investments, is into the following strategy:
·
Improve cash generation in existing businesses & drive monetization
of new revenue streams:
o
Increase ARPU by driving 4G penetration: As on Mar 2023, VI 4G covers over 100 crores
of Indian population. As only 54% of its 22.59 crore base is 4G enabled, it promotes
the differentiated “Hero unlimited plan” to prepaid consumers which offers
unlimited night data & weekend data rollover across TV & Digital.
Likewise, it has rolled out incentives for 2G customers to upgrade to
smartphones by offering cashbacks on monthly recharges & 0% EMI on device
financing in partnership with OEMs & NBFCs.
o
Postpaid: While
consumer postpaid base is stable, M2M postpaid segment has been growing;
postpaid now accounts for around 10% of its base. VI Max data plan which offers
more data, entertainment & privileges is promoted.
o
Refarming 3G spectrum into 4G: Company closed 26700 sites during the year
& most of these sites now has one carrier of 2100 MHz deployed for 4G
o Digitalize customer touchpoints
& distribution channels.
o
Strengthened partnerships & integrated all content on the VI app across Music, Videos,
Gaming, Education & Jobs - freeing consumers from downloading multiple apps
- & improving revenue & profitability too.
·
Focused investments on 17 priority circles accounting for 98% of its revenues
& 93% of Industry revenue.
o
Acquired 850 MHz of mid band 5G spectrum (3300
MHz) in its 17 priority circles and 5,350 MHz mmWave 5G (26 GHz) spectrum in 16
circles, with a plan to introduce 5G services when funding is in place.
o
Acquiring additional 4G spectrum across 1800
MHz, 2100 MHz and 2500 MHz bands in 3 circles of Andhra Pradesh, Karnataka and
Punjab.
·
Drive Enterprise business from Telco to Tech Co:
o
Continues to strengthen engagement with
customers with a range of offerings like Vi Secure, Integrated IoT, Managed
SIP, and Vi Business Plus bundled mobility offering.
o
Industry first IoT lab to test & certify IoT
devices, built in partnership with C-DOT, for promoting standardization & interoperability
as per ”OneM2M” standard in the country.
·
Provide superior customer experience:
o
As
per TRAI “My Call” app for 25 of the 29 months between Nov 2020 to Mar 2023, VI
had the highest rated voice quality.
o
They
may also be working towards a device agnostic strategy based on the insight
that while feature phone works only on 2G, some smartphone customers use no /
low data & hence the need to address consumer need devoid of device.
·
Drive Differentiation through partnerships:
o
On
VI app a new channel “BYTES” launched in partnership with NDTV for providing
snackable content, gaming launched in partnership with OnMobile to play daily
tournaments, & eSports on VI Games in partnership with eSports startup
Gamerji.
·
Use more, Pay More:
o
VI is not too keen on increasing the minimum
pricing plan fearing greater churn; instead, it is evaluating tweaking the
unlimited plans by charging more from consumers using more.
Jio, which had disrupted the
Telecom industry by launching 4G earlier, has gone for an
·
Aggressive 5G Stand Alone (SA) drive,
even as it continues to push for a “2G Mukt Bharat”.
o
For Market share gains in mobility
o
Enhanced customer engagement via enhanced video
experience & ARPU upside thereof.
o
Accelerate Fixed Wireless Access (FWA) called “Airfibre“
for Homes & SMBs. Launched the 198 plan nudging customers, even with a
broadband connection of competition, to use it as a back-up to avoid missing out
on the action during the IPL season. While this connection plays a role similar
to a 2nd sim in mobility, the idea is to win over those customers
eventually away from competition. More traction for this plan has been seen in
Tier 2/3 towns though because of affordability.
o
Deployment platform solutions at scale for
Enterprises.
·
Aggression on Home Broadband :
o
Plans to target 10 cr. homes in 2-3 years on its
dual FTTH JioFiber & FWA AirFiber strategy.
o
Use the 5G capacity secured via the 700Mhz
spectrum to offer FWA broadband on demand unlike wired broadband which is
dependent on availability of home passes.
·
Attack the Postpaid stronghold of
competition:
o
It is now focusing more on the Postpaid segment
– traditionally the strength of its competitors by launching the “Family plan”
whose benefits can be shared by a family of 4.
·
End to End solutions for Enterprises
& SMBs:
o
SMBs are not sophisticated buyers unlike large
Enterprises & hence are looking out for an end-to-end solution – connectivity, devices, managed services, cloud
enables applications. Jio plans aim to attract SMB loyalty by offering a one
stop shop proposition to grow customer revenues, operational efficiencies &
profitability.
o
It has made some acquisitions like C-Square
Pharmacy Management Software too in pursuit of such a strategy. it bundles the
software along with connectivity solutions to mall hospitals & clinics to
manage their operations with the added advantage of ordering from one of their
sister companies “Netmeds” to can make additional margins.
·
Disrupt the Media space via “Glass to Glass” video broadcasting
solutions:
Jio plans broadcasting via “Jio Cinema” from the “glass” of the camera,
capturing action on the field, to the “glass” pf the viewing screen across
various form factors – laptops, mobiles, tablets, TVs etc. Customers given a
choice to choose a camera angle of their choice etc. are unique differentiators
which provide for a truly interactive media experience very different from
traditional broadcasting. Jio has won streaming rights for IPL & is thus
developing new properties too. The traditional entertainment space via broadcasting
and other media is likely to transform into a truly interactive and streaming
based media consumption.
Conclusion
The Telecom industry has been carved into 2
groups – the cash rich telcos like Airtel & Jio – with the money & the
muscle to aggressively expand 5G - & their poor Country cousins – BSNL
& VI which cannot.
The richer Telcos could focus on driving down FWA
cost convergence towards FTTH costs & accelerate wireless broadband
penetration & ARPU upsides thereof via bundled media offers. 5G use cases
development for enterprises continues for revenue upsides even as end to end
solutions are offered to SMBs - who not being sophisticated buyers like Enterprises
- are looking for a trusted partner – a role telcos are uniquely placed to fulfill.
Since customer experience across usage of
videos, e-Mail, social media etc. across 4G or 5G is nearly indistinguishable,
poorer operators would be advised to strengthen their 4G networks, where
available, to protect their existing base; they should keep their 2G prices competitive
too & not follow the lead of their richer counterparts in increasing their
minimum pricing.
Consumer groups & the Regulators would be
keenly watching these moves as they would be concerned about the risks of an evolving
duopoly.
