Vodafone Idea, an operator that is struggling to stay afloat, seems to have finally decided to abandon its long-held strategy of allowing Reliance Jio to undercut it on prices and lure away its customers.
For the last four years, Vodafone and Idea always allowed Jio to price its offerings lower, thus helping the Mukesh Ambani firm capture market share.
That policy was crucial in helping Reliance Jio overtake Vodafone Idea and become India’s biggest telecom operator. With Jio running away with most of the business, Vodafone Idea is now left gasping for air.
And in its final throes, the company seems to have decided to give it a fight.
Starting yesterday, Vodafone Idea has started offering twice as much data, or 3 GB per day, under its unlimited plans.
With this, users can get 3 GB of 4G data daily and unlimited voice calling for just Rs 249 for 28 days. In comparison, Jio is offering only 2 GB of data per day for the same amount.
Similarly, for Rs 399, Vodafone Idea is offering 3 GB of daily data for 56 days, while Jio is charging Rs 444 for just 2 GB of daily data.
Finally, Vodafone is also offering 3 GB of daily data for 84 days for Rs 599, while Jio is offering only 2 GB per day.
These rates are also much much lower than what Airtel is charging.
The move is seen as a desperate and last move by Vodafone Idea, which has seen the ground beneath its feet erode every single day since Jio launched its services more than three years ago.
The company, which once had close to 55% of the total market (combined revenue of Vodafone and Idea), has seen it reduced to barely 30% due to the relentless growth of Jio.
Vodafone and Idea customers were forced to use Jio’s services for two reasons:
The first was the policy followed by Vodafone and Idea that they will never try to compete with Jio on price; they will always make their voice and data packs more expensive than Jio.
This was supposed to be an incentive for Jio to increase its price so that everyone benefits. “Idea’s tariff is always at a premium, so that it is safe for them to raise tariff,” reassured Idea CEO Himanshu Kapania in an investor interaction in 2017.
However, instead of luring Jio to raise prices, the policy of not competing with Jio’s prices simply drove consumers away to the new entrant.
Consumers simply purchased dual-SIM 4G phones and inserted a Jio SIM in the second slot. They shifted all their voice and data usage to the second SIM, dealing a near fatal blow to Idea, Vodafone and Airtel.
Tellingly, consumers did not use mobile number portability to move their main number to Jio. This meant that they still expected these operators to fight back, if not at present, at least in the future, or they expected Jio to raise prices.
However, the fight back is where the second factor came in — network capacity.
Vodafone, Idea and to a large extent Airtel, did not have the kind of network that could support the same level of data traffic as Jio’s.
As a result, even if they decided to match Jio’s tariffs, their networks simply were not ready to support the increased volumes that such a move would generate.
That has changed. Over the past one year, Vodafone Idea has been working on its network — combining the spectrum of Vodafone and Idea and creating a single network with a capacity that is about four times what the individual capacity of Vodafone or Idea used to be a year ago.
Armed with the combined strength of Vodafone and Idea’s spectrum and equipment, the company now believes that it is ready to give Reliance Jio a run for its money.
From a strategic view point, it has also realized that keeping its prices high to keep Mukesh Ambani’s firm happy has not been a winning strategy. Instead, it has been like trying to keep your enemy happy by throwing it food. Not only has this failed to keep the rival happy, it has simply made it stronger than ever.
Thanks to the relentless loss of subscribers and business, Vodafone Idea has been pushed to the edge of bankruptcy.
JIO’S COUNTER ATTACK?
What remains to be seen is how Jio reacts to the latest ‘act of provocation’ from Vodafone Idea.
Any move to slash prices has always been followed by an even more aggressive move by Mukesh Ambani to bring down its prices.
However, at that time, Reliance Jio was still in the early, investment phase. It could afford to cut prices to unrealistic levels, just to make a point and bleed its rivals.
However, now, as the No.1 telecom operator, it is not in the same position, and needs to worry about its own sustainability and generating returns for its investors.
As such, it remains to be seen if Jio will indeed go one step further and cut prices even more aggressively. In fact, it remains to be seen if the firm will even try to match Vodafone Idea’s offering of 3 GB per day.