It is not every day that a new entrant forces the established players in the market to overhaul their business models. But Reliance Jio seems to be doing just that, and rivals like Bharti Airtel are proving to be quick, if slightly unwilling, learners.
In the three months from January to March this year, Airtel saw an eye-watering 32% fall in the price of its data sold in the market, accompanied by a 17% decline in the price of voice calls, according to the numbers released by the company late last night.
Typically, that should have implied a steep fall in the company’s revenue and profit. But surprisingly, the company’s mobile revenues in India fell only by 6%.
The reason? There was a big surge in traffic as consumers lapped up the cheaper data and voice offerings.
In the three months to March, Bharti Airtel was getting about 12.20 paise for every MB of data it sold, compared with 17.97 paise in the previous three months and 22.87 paise in the same three months of the last year.
This represents a halving of data price in the last one year.
Similarly, it was able to get only 24.28 paise for every minute of voice call carried on its network in India, down 17% from 29.42 paise in the previous three months.
These declines are the result of cheap tariff unveiled by Reliance Jio, a new entrant that has taken the market by storm.
Armed with a high-capacity network, Jio is making a play on volumes while keeping prices low, betting that rivals like Idea Cellular, Vodafone and Bharti Airtel will not be able to support the kind of volumes it offers.
However, Bharti Airtel seems to be managing to keep up in terms of increasing the volumes of data and voice on its network to offset the decline in price.
In the three months ended March, there was a 31% jump in the total amount of mobile data consumed on the network. Total data jumped from 171 mln GB in October-December to 225 mln GB in January-March. Typically, the increase used to be in the 12-13% range.
In other words, when the data price fell 32%, data consumption increased 31%. That said, the increased consumption was not able to fully offset the impact of lower prices. To fully offset a decline of 32% in pricing, consumption would have to increase by 47%.
Still, even the 31% increase was able to substantially cushion the impact and limit the loss of data revenue to 11%.
The impact was very similar in the voice business too, though not quite to the same degree.
Here, voice prices fell by 17%, while the volume increased 15% — resulting in a net revenue decline of around 4.5%.
The combined effect of the two was a fall of around 6% in Bharti Airtel’s overall India mobile revenue.
The numbers indicate that Bharti Airtel may be able to make the transition to a high-volume, low-price model to compete with Reliance Jio while largely maintaining its revenue.
The key question this raises is how far Airtel will be able to imitate Jio’s volume play as it has a lower capacity network compared to Jio.
To address the issue, Airtel added 20,000 3G and 4G towers in the three months. In the preceding quarter, it had added about 23,000 in the preceding three months. In the quarter before that, the addition was only 10,500 towers.
As a result of the quick additions, the number of 3G and 4G base stations on the network has gone from 1.18 lakh to 1.91 lakh in the last one year.
However, capital expenditure — money spent on equipment, spectrum and so on — was relatively low in January-March at 2,054 cr, compared to an average of 3,672 cr for the previous four quarters.
Bharti Airtel generated cash of 4,540 cr from its total operations during the quarter before tax and interest, down from 7,121 cr in the preceding three months.
Excluding working capital changes, the company was able to generate cash of 7,288 cr, down from 8,114 cr in the preceding three months and Rs 8,963 cr in the same period last year.