Author(s): Kester Mann
If you're a mobile operator, you should hope that a competitor like Reliance Jio isn't headed to your market.
India has emerged as the country with the lowest mobile data prices in the world. People pay on an average 18 rupees (about $0.25) for each GB of data, against a global average of 600 rupees (about $8), according to Cable, a UK company that compares fixed-line and mobile pricing worldwide.
Other countries highlighted by the report for offering very low data prices include Kyrgyzstan ($0.3), Kazakhstan ($0.5) and Ukraine ($0.5). On the flip side, the US and Canada have some of the most expensive prices, at $12.4 and $12.0 per GB respectively.
Few mobile operators could afford to provide services at such low prices, and it would appear that 25 cents is below the cost of delivering the data connectivity. Can the Indian market continue to sustain this practice?
Over the past few years, we've highlighted one player that completely shook up the Indian telecommunication market, changing the competitive dynamics. In 2016, Reliance Industries launched Reliance Jio with free or nearly free mobile services, causing a numbing effect on the telecom sector. Jio has pushed mobile data prices down sharply in the country.
Reliance Industries pumped in over $30 billion to build out a state-of-the-art 4G infrastructure and a pan-India fibre-optic network. Unlike its rivals, Reliance Industries could subsidize its fast telecom expansion using money from a conglomerate of companies involved in energy, chemicals and textiles among other industries.
It enticed consumers by offering Jio as an additional, and risk-free, service to their existing provider, as it promised free voice calls and cheap data services. Initially, these customers stayed because of brand loyalty, but gradually both Vodafone and Airtel users gave in to Jio's cheaper rates. Competitors were forced to slash prices to prevent churn.
There were 10 telecom operators when Jio launched in 2016; now there are just four. In order to fund their spectrum purchases and operating costs, companies took on more debt, using this to stay afloat in the price-war. The service costs of debt further worsened their financial position, triggering a consolidation in the industry.
At the end of 2018, Jio had more than 280 million subscriptions. It controls about 25% of the overall market, has a share of LTE connections above 70% and a revenue share of close to 30%. Jio holds the third spot in the market, behind number-one player Vodafone Idea and Bharti Airtel, but its current trajectory could see it become India's leader within a few years. Indeed, we predicted in 2017 that it would become a top-10 global mobile operator based on subscribers (see CCS Insight Predictions for 2018 and Beyond).
Along with Airtel, Vodafone and Idea Cellular, which merged in 2018, have complained to the Telecom Regulatory Association of India that Jio's free voice calls and rock-bottom data rates are hurting the mobile industry by driving down revenue and profit needed to expand infrastructure. Although they make a valid point, consumers have benefited greatly from Jio's entry.
The Jio effect has been profound in India. The country's average monthly mobile data usage of 8GB per user is far ahead of developed countries including the US and the UK. Most of India has leapfrogged fixed-line data connectivity to mobile. This growth in consumption has been closely linked with the drop in prices. With an average of 10.5GB of data per user per month, Jio holds the 11th position among operators worldwide, according to a report by tefficient.
When Jio launched operations in 2016, it helped spark a digital revolution in India, and it's difficult to find fault in that. The operator has the world's first all IP-based network, and it rewrote the rules of the telecommunication sector in India almost overnight. The nation's digital push has shown clear results already in e-commerce, financial technology and online video streaming. Mobile data is said to be the new oil, and this data will fuel future economic growth for India.
But now a certain maturity is settling in on the market. We believe Jio will pursue a less aggressive pricing strategy in 2019, as it lowers discounts to boost returns on its $30 billion investment. With telecom operator margins now wafer-thin, profit for the operators has shrunk to almost zero. This can't be sustained in the longer term, particularly as operators begin to plan 5G networks. We expect mobile data prices to stabilize in 2019, and help the big three to stop the bleeding and return to their earlier glory days.