Telecom: Rural Network

On 4 April, Reliance Industries Chairman Mukesh Ambani announced that Reliance Jio crossed 72 million paid subscriptions in India. This number is more than triple of the combined subscription of all its long established rival operators’ 4G services in the country.

Thanks to the competition, the Indian telecom market is all set for the next big boom with a focus on data services. However, this phase of telecom growth in India — the world’s second largest market — will be significantly driven by a new set of cities, thanks to the emerging affluent hubs and the falling cost of smartphones and services.

These new markets have already seen the consumption index growing in all the industry segments, including telecom and are now the focus of manufacturers as well as service providers.

For telecom, it is a win-win situation. The service providers, who have optimally covered their bases in metros, have already reached the level of saturation in terms of consumption. Now it is the tier-2 and -3 cities that are showing up strongly on their radar. And for the consumer, the device and services have become more affordable.

High Volume Low Margin Play
The catch, however, for the industry in is sustainability, as the current market boom is strictly based on reduced prices and low tariffs. The main contributor for Reliance Jio’s vast conversion of free subscription to paid subscription is largely from these tier-2/3 cities and the semi-urban and rural markets. Therefore, the model will work only if the service providers can maintain the high volume-low margin game.

Since many of the early entrants, (Airtel, Idea and Vodafone) have already invested heavily in the 2G and 3G infrastructure and continued with the high tariff regime, their market penetration is still limited to the metros. Although the new growth regime will certainly force them to focus at these emerging markets, a comparatively smaller subscription base in the 4G service and a heavier investment needed to create the infrastructure will squeeze their profitability further, says an industry analyst, who doesn’t want to be identified.

Competitive Era
With the free voice and data offer through its maiden 4G service, Jio marked the real disruption in the services space, triggering the first sign of industry consolidation (Vodafone-Idea merger) and many sequential changes in the spectrum trade and even in the smartphone market. The low-cost data plans by the operators also changed the market dynamics in the India telecom space. The traditionally voice-driven Indian telecom market is now moving towards being data driven. The movement has also led to competition in the smartphone market and the prices have started falling.

Overall, the changing information and communication technology (ICT) landscape in the country also made the operators change their strategy largely to include the vast semi-urban markets. The aggressive digital India campaign initiated by the government has also given much needed push in this changing market dynamics.

Evolving Media and Entertainment Market
Growth of HD penetration and data consumption is revolutionising the broadcasting industry as well. “While HD penetration with respect to the national cable and satellite base is at 4.9 per cent, it is 17 per cent within the paid DTH base. As technology and hardware costs fall, we can expect a greater number of HD channel launches and a higher contribution to viewership,” says Pankaj Krishna, founder of research company Chrome DM.

In terms of tier-2/3 markets, the new cities’ average revenue per user (ARPU) has already grown 7 per cent on a year-on-year basis, which is about 2 per cent higher than the ARPU in metros.

“The other difference is the preference towards DTH, with penetration among TV households at 44 per cent compared to 35 per cent in metros. Seasonal offers by DTH players, consumer lock-in periods and channel packaging have further driven DTH growth in tier-2/3 cities. With the lowering of base pack prices across all DTH providers, DTH is fighting head on with digital cable in terms of price points too,” added Krishna.