Sunil Mittal’s Airtel, about one-third owned by Singapore Telecom, steals a march over Mukesh Ambani’s Reliance Jio by becoming the first to offer fourth generation mobile services across India.
New Delhi: Bharti Airtel Ltd has thrown down a challenge to its 200 million customers in India: Find an Internet connection that’s faster than its high-speed, data-rich, fourth-generation (4G) mobile phone service, and the company will pay their phone bills for life.
That audacious offer was made after Bharti Airtel, about one-third owned by Singapore Telecommunications Ltd, on 6 August became the first phone services provider to commercially launch 4G services across India, beating existing competitors, including Vodafone Group Plc, and stealing a march over would-be rival Reliance Jio Infcomm Ltd.
Bharti Airtel launched 4G services at 3G prices in 296 cities and towns countrywide, and offered users sweeteners, including unlimited voice calls on mobile, along with bundled movies and music, and a mobile app giving users access to a vast collection of videos.
With that, India’s biggest phone firm by revenue and subscribers, controlled by billionaire Sunil Mittal, fired the first shot in India’s upcoming 4G war.
Reliance Jio plans to launch its long-delayed pan-India 4G services in December. By rolling out its network four months ahead, Bharti ensured it will be up and running by the time Reliance Jio, a unit of Mukesh Ambani’s Reliance Industries Ltd, (RIL) hits the ground. It will be Reliance Jio which will be playing catch-up.
“What we have to do is see if we can use this opportunity (head start) to improve our business,” Airtel’s chief executive officer Gopal Vittal, who took the helm in March 2013, said in a 6 August interview, at the time of the launch. “See if we are more ready and prepared, for any competitor, and are we selling to our customers better.”
To attract as many users as it can to its 4G network, Airtel has taken a two-pronged approach—towards devices and towards services. It has tied up with Flipkart.com so that when customers buy some brands of phones on India’s largest e-commerce marketplace, they can opt to get an Airtel 4G SIM delivered to their homes along with the device.
Some of the brands that will be available from Flipkartunder this tie-up have 4G phones for as low as Rs.6,000. It has also tied up with Samsung Electronics Co. Ltd so that customers can try out Airtel’s 4G services and swap SIMs at the South Korean company’s retail stores across the country.
That’s to reel in new users. For its existing customers, Airtel is offering home delivery of 4G SIMs. Just text or tweet to the Airtel service number, and a new 4G SIM is delivered to the user’s doorstep within four hours.
“So far it looks good,” said a telecom analyst with a foreign securities house on condition of anonymity. “They have the first-mover advantage, which gives them a huge marketing and branding boost.”
For users, a 4G network essentially offers two things—better call quality and data speed. What that means is that it should reduce that bane of a cell phone user’s existence—call drops—and that you can download Mission: Impossible-Rogue Nation within 20 minutes, down from more than an hour that it would take on a 3G network.
The use of 4G reduces congestion on the rest of the network, thereby reducing call drops significantly
The latter is also probably the reason why Airtel has introduced Wynk movies—an in-house app that allows subscribers to access a library of 25,000 movies and more than 1.8 million songs by streaming or downloading them.
And to encourage users to download these movies (or other data), Airtel is selling the higher-speed data services at the same price as 3G services.
That means a user with a prepaid Airtel connection in Delhi can get a Rs.17 recharge that gives him 50MB of 3G data at 4G speeds.
The same 50MB will come to the user 20 times faster. Bharti has also launched so-called Infinity Plans as part of its 4G roll-out. These plans, starting at Rs.999, offer unlimited calls bundled with a cap on data for the plan period.
Risk taker
Airtel has come a long way in the 20 years since it was incorporated as a public limited company in July 1995. With operations in 20 countries in Africa and Asia, it is today the world’s third largest phone company, and has a market capitalization of Rs.1.62 trillion. Singapore Telecom has a direct and indirect stake of 32.34% in the company, having taken an initial stake in 2000-01.
Airtel has been the original risk taker in the 4G space in India, although it’s Reliance Jio that has hogged all the attention with its potentially disruptionist entry into the world’s second largest mobile phone market.
It was the first one to offer this network on a trial basis, starting with Kolkata and Bengaluru in December 2013, where it launched it with dongles and routers as hand-held devices were available only to a tiny fraction of users who bought them on overseas trips.
To be sure, for the past two years, it’s been slow going for the company. After a trial launch in a handful of cities, Airtel’s roll-out of its 4G network slowed.
In fact, even as recently as early July, the firm said it planned to roll out its 4G network in 29 cities by the end of this year—plans that it has since turbocharged, no doubt to beat Reliance Jio to the launch.
The telecom unit of RIL, which acquired licence and spectrum for telecom services in 2010, has already spent in less than five years nearly what Bharti has in 23 years. Reliance Jio’s total capital employed reached $14 billion at the end of 2014-15, compared with Airtel’s close to $15 billion.
The firm has ready apps such as Jio Mag for news, Jio Beats for music and Jio Play for television. Reliance Jio plans to launch its high-speed data services across the country using a blend of several technologies, including two rival 4G high-speed wireless technologies, as well as other network options such as FTTx (fibre to the location) and Wi-Fi hotspots.
Reliance Jio’s cloud-based services are expected to span healthcare, education and entertainment, and build synergies with the home shopping and content businesses of Network18 Media and Investments Ltd, in which RIL has acquired a majority stake.
Reliance Jio also plans to enable end-to-end solutions in education, healthcare, security, financial services, government-citizen interfaces and entertainment, said a company statement released on 17 April.
A 4G headstart doesn’t mean the fight is over for Bharti.
“I don’t expect them (Bharti) to cover more than 20% of the key 3G markets for now (with the 4G network), but once Jio launches, they will likely accelerate,” said the analyst cited above.
On the treadmill
But Airtel’s vast 3G network and data coverage gives it a significant advantage over its competitors.
“They are on the treadmill already, at a slow, steady speed; and when the time comes, they will increase the speed. Others (such as Vodafone and Idea) are still buying the shoes,” this analyst said.
This is Mukesh Ambani’s second venture into the telecom sector. The first time round, he gave up the mobile-phone company he launched in 2003 to his younger brother Anil Ambani when the two split up the family’s business empire in 2005 following the death of their father, Dhirubhai Ambani.
To be sure, comparisons are hard to make at this point as Reliance Jio has been fairly secretive about its plans, especially details on its go-to-market strategy.
What is known is that Jio has already deployed its network across all 29 states, including 18,000 towns and cities, that it will start nationwide beta testing this month and is expected to roll out 4G services in December simultaneously in multiple cities across the country.
Reliance Jio did not respond to a request for comments.
Reliance Jio plans to cover 80% of the country by the end of the year and 100% in three years, chairman Ambani announced in Reliance’s annual general meeting on 12 June.
Of course, it doesn’t have any customers so far. With its December launch, it will still be ahead of most telecom providers—especially the country’s numbers two and three Vodafone and Idea Cellular—with its 4G services.
To catch up, it has set high targets for itself—five million customers in its first 50 hours, according to a May Reutersstory. (To put that in perspective, India added 4.2 million broadband subscribers in an entire month, in May.)
Reliance Jio’s plan is somewhat similar to Airtel’s—offer high-speed data services at low prices, something it can afford to do, thanks to its billionaire owner’s deep pockets.
“As we speak, we have an end-to-end initial capacity to serve in excess of 100 million wireless broadband and 20 million Fibre-to-the-Home customers, with capability to easily expand further as the business scales up,” Ambani told shareholders on 12 June.
The company is expected to employ one of the oldest tricks in the books used by all new entrants—low-ball prices, a tactic that Reliance used successfully the last time it entered the telecom sector in 2003 with an offering called the Monsoon Hungama.
But Airtel says it’s ready for a price war, if that’s what it comes down to.
“We have been through price wars, and if it all comes down to pricing, then we will do what we need to,” Vittal said in the interview. “There’s no point speculating now. We will have a competitive business.”
But beyond price cuts, Airtel is also strengthening its presence across the country.
Behind the curve
“We are the only operator with 3G spectrum with a national footprint,” says Vittal. “4G, we are in 14 circles (out of 22); 900MHz which is indoor coverage or 3G, we are in 7-8 circles. So, for spectrum, we are very well placed. In our industry, if a new player comes in creating a large amount of capacity, then all of the players will get hit.”
And what about the other telecom companies in the country?
Idea Cellular Ltd, India’s third largest telco by subscribers, is just starting to play catch-up. Chief executive officerHimanshu Kapania said in July the company will start deploying 4G services in 2016 in 10 circles across the country.
For a firm that was the first to announce, post the 2014 spectrum auction, that it had acquired 1800MHz spectrum (that’s also the spectrum on which companies offer 2G services) and would use it to deploy a variant of 4G technology in the next few years, it will be a definite latecomer to the party. Even now, Idea Cellular maintains it would remain focused on investing in 3G deployment.
“Initially, exercising caution, we deferred 4G launch as equipment and smartphone prices were not competitive to 3G technology. However, in the last 18 months, the high-speed broadband technology has matured,” a senior executive from Idea said in an email to questions fromMintAsia.
Similarly, India’s second largest telco, Vodafone India Ltd, said it was testing its 4G services in some zones. In response to a detailed questionnaire, a company spokesperson only said it was in the process of testing its 4G services, but did not share potential rollout dates. And all of this is not only a fight to capture the customer, but also the revenue from data because that’s what 4G is—a data game.
One of Vittal’s favourite phrases is that he views the world in megabytes.
And that’s what this might boil down to, as is evident from Airtel’s earnings for the June quarter. Revenue from data rose 67.3% to Rs.2,609 crore from a year ago as the number of data customers rose 25.8% to 49.4 million. The number of 3G customers grew 70% to 21.3 million. Data usage grew 83% to more than 102 million megabytes (MB), while data usage per customer rose 43% to 706 MB. The average data revenue per user increased by Rs.42, or 30%, to Rs.181 in the quarter. Data revenue now accounts for 19.2% of India’s mobile revenue as compared with 12.4% in the year-ago period.
“Bharti, with its 4G spectrum coverage in 14 markets and pan-India 3G coverage (except in one circle), combined with a capex intensity, should benefit from the disproportionate share of data revenue in our view and resulting in (revenue market share) gains,” HSBC analyst Rajiv Sharma wrote in a 5 August report. “One of the key debates has been 3G versus 4G; however, in case of Bharti, investors need not worry about which technology will gain traction as Bharti is well placed on both sides to benefit.”
A significant part of the developed world, and some of the developing world, has already moved beyond 4G to 5G and other technologies, said Hemant Joshi, a partner at Deloitte Haskins and Sells.
“For us (Indians), it’s a catch-up game.”
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