4G PRICES: Vodafone takes off gloves in fight with Reliance Jio

India’s cheapest 4G plans as of Feb 2, 2019

With a long and painful process of merger with Idea Cellular over, Vodafone India has started has begun slashing its 4G prices and has dislodged new entrant Reliance Jio as India’s cheapest 4G provider.

Vodafone Idea, which has been bleeding millions of customers every month in the face of relentless competition, has slashed the price of its cheapest 4G plan by nearly 40%.

Jio had been holding the title of India’s cheapest 4G operator ever since its launch in 2016, and has a stated policy of offering ‘20% more data than its nearest competitor’ at any price point.

However, Vodafone’s new plan — which offers 3GB of data per day for 84 days at Rs 569 — has made that promise redundant — 2.5 years after it was made.

Vodafone’s new 4G plan prices 4G data at Rs 2.26 per GB, 15% cheaper than Jio’s cheapest 4G plan: The 448 pack that gives 2 GB of data per day for 84 days.

Moreover, that’s not the only new plan that Vodafone Idea has unveiled.

There’s also a Rs 511 plan that gives 2 GB of data for 84 days. This plan effectively prices 1 GB of 4G data at Rs 3.04. Earlier, Vodafone used to give 1.5 GB of data for 84 days at a price of Rs 458 — or Rs 3.56 per GB.

With the new plans, Vodafone now holds 2 out of the 4 cheapest 4G plans in India (see chart above), accounting for No.1 and No.4. Slot No.2 and No.3 continue to be occupied by Jio with its 2GB-84 day plan and 2GB-70 day plan respectively.

NETWORK EFFECT

The aggressive move by Vodafone is due to two reasons.

One, the company has made a substantial progress in its network integration with Idea Cellular.

This allows it to carry more data.

If Vodafone or Idea had started offering such packs six months ago, their users would have seen significant degradation in their experience as the companies’ networks were not built for supporting this kind of load, unlike that of Jio.

Moreover, the two companies have been forced to go slow on their network expansion for several months due to the uncertainty caused by their merger being kept pending by the Department of Telecom. There were certain types of network integrations and deployment that could be done only after the merger was consummated.

The merger was finally approved by the DoT in July last year, freeing the two companies to invest in their network and put up a bigger fight against Reliance Jio which, for all practical purposes, was running away with the 4G market.

SPECTRUM BOOST

Vodafone Idea has since started deploying the crucial ‘capacity spectrum’ in the 2.3 GHz band in crucial states like Kerala, Maharashtra and Madhya Pradesh.

Capacity spectrum, also known as TDD spectrum, is crucial to support high throughputs under load.

Coverage spectrum, in the 1.8 GHz band, is primarily used to achieve coverage, but can get quickly overwhelmed when a large section of users start consuming data. Both Vodafone and Idea had deployed only coverage spectrum till about five months back, which constrained their ability to offer the kind of cheap data packs that Airtel and Jio were giving.

However, in the last five months, the two companies have not only started deploying capacity spectrum, but have also started deploying extra blocks of 1.8 GH spectrum.

Using advanced technology known as carrier aggregation, it is now possible for the same phone to access more than one block of spectrum (carrier) at the same time, helping the user overcome the effect of network congestion and increasing the capacity of the network.

The merged company is also diverting about half of its 2.1 GHz spectrum — traditionally used for providing 3G services — to its fast-growing 4G network, further increasing network capacity.

In addition, it also has capacity spectrum in the 2.5 GHz band which is yet to be deployed. Once this too is deployed, Vodafone Idea will have the most powerful 4G network in India from a spectrum standpoint. Depending on how aggressively it rolls out base stations, it could also overtake Jio as the network with the highest 4G data carrying capacity.

BREAK DOWN OF CONSENSUS

All this raises questions about the emerging contours of the market and the fate of its third player, Bharti Airtel.

Airtel was traditionally Jio’s closest competitor in terms of both prices and network capacity.

However, with the new packs, Airtel has been clearly pushed to the third position, and that too by some margin.

Now, Airtel accounts for only one out of India’s top 16 4G plans by affordability, while Jio accounts for six and Vodafone accounts for eight.

Airtel’s cheapest 4G plan in India is the 448 pack that gives 1.5 GB of data per day for 82 days. That pack prices 4G data at Rs 3.64 per GB — 61% higher than Vodafone’s cheapest 4G plan.

The latest move by Vodafone also indicates two things: One — the ‘consensus’ among the traditional players to not attack Reliance Jio on pricing has broken down.

This was a consensus reached exactly a year ago after a bruising tariff war between Jio and Bharti Airtel threatened turn the market into a graveyard. The tariff war was the result of an attempt by Airtel to protect its customers from poaching, by offering packs that were comparable to those of Jio in terms of affordability and pricing.

This led Jio to cut its already-low prices by around 30% in early 2018, leading to Idea CEO Himanshu Kapania memorably calling for a truce between the warring parties in the interest of the industry.

Kapania, who is now on the board of Vodafone Idea, at the time promised that Idea Cellular will “keep a distance” from Reliance Jio in terms of pricing — an olive branch intended to calm down the Mukesh Ambani-led company.

However, that truce seems now to be broken with the latest tariffs from Vodafone’s side.

It also raises the question of if and how Jio will react.

Industry participants don’t believe it will for the reason that it is now as much an ‘incumbent’ as the other two companies.

The market share of the three big players is largely similar, with Vodafone Idea at around 40% and Airtel and Jio at around 30% each.

“Jio is no longer a kid who can pull any prank and get away with it. It is today a big player, which forces it to be more responsible in how it reacts to competition,” pointed out an industry veteran not associated with any of the three companies.

He also pointed out that while it was Jio that had nothing to lose in the early stages of the game, right now, Vodafone Idea and Bharti Airtel are also in the same boat as they are hemorrhaging customers.

“If these companies continue to maintain the policy of ‘we will not try to match Jio’s prices’, they will soon become irrelevant,” he pointed out. “I think even Jio realizes this.”

The second signal that the move is sending is that Vodafone Idea no longer sees Jio’s pricing strategy as a temporary measure meant to attract users.

Both Idea and Airtel officials used to give projections that data and voice prices will soon start climbing, once Jio stops its ‘promotions’.

However, two years later, the new entrant has shown little inclination to stop its ‘promotions’ or raise prices. Not suprisingly, the incumbents too have stopped talking about raising data prices going forward.

“I think they are finally realizing the truth that there is not turning the clock back as far as prices are concerned. Like any technology-based industry, unit prices will always come down with time, and the only way to support revenue is by increasing volumes,” pointed out the veteran.

For the consumer, the move comes as welcome news as it indicates healthier and more robust competition in the market, with both Airtel and Vodafone Idea taking on Jio in a battle for survival.

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