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Reliance Jio Prime forces telecom firms to focus on high-paying customers

LiveMint logoLiveMint 02-03-2017 Amrit Raj

New Delhi: Indian telecom companies are offering aggressive tariff plans to retain customers and poach high-paying users from rival operators as they seek to arrest a decline in their revenues amid a tariff war.

The move follows the launch of Jio Prime by Reliance Jio Infocomm Ltd, under which the firm is offering free voice calls and data with a daily cap of 1 GB for Rs303 a month. Jio’s Prime plan aims to retain its 100 million user base after its free services end on 31 March as well as poach subscribers from other networks.

Responding to Jio’s move, India’s largest telecom company Bharti Airtel Ltd introduced a Rs145 plan and another Rs349 plan. The cheaper plan offers 14GB data per month with a 500MB cap per day and unlimited calls to Airtel numbers. The Rs349 plan has unlimited calls to all networks.

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Vodafone India Ltd, on the other hand, is targeting Jio’s Rs499 plan by offering 15 GB of data for the first three months at the same price and 6 GB thereafter, according to a call received by this reporter to port his number to the Vodafone network.

A person aware of Airtel’s plans said these plans are meant for customers who reach out to them proactively to move out of the network.

“Such offers are made to them,” the person said.

Such moves are crucial, especially in the wake of the launch of services by Reliance Jio, which has taken the market by storm with its promotional offers and free voice calls. Since its launch, the telecom industry has lost about 20% of its revenue due to Jio’s free services, India Ratings and Research said, revising its sectoral outlook for 2017-18 to “negative”.

An email sent to Airtel remained unanswered at the time of going to press. A Vodafone India spokesperson declined to comment.

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However, during Bharti Airtel’s earnings call with investors for the quarter ended 31 December, chief executive officer Gopal Vittal said the challenge for the firm, which has a stratified average revenue per user (Arpu) table across the market with different customers at different levels of Arpu, is that there could be some users who will move to a cheaper plan.

“But that is unfortunately the competitive dynamic that we are living in today, and that is something that we believe makes a lot of sense for us, because that will drive more high-Arpu customers into our network,” Vittal had said.

“In the context of playing an Arpu game, we believe that bundled packs make a lot of sense to lock in Arpu, deliver value,” he added.

Airtel is, in fact, urging its sales partners to push these plans to customers and its channel partners are being given special commissions on these plans—double the 2.5-3% that they get on other plans.

According to a 27 February report by Credit Suisse, Airtel’s plans are not openly marketed but targeted at higher-Arpu customers through the Airtel app, or the plans are disclosed when one walks into a store for cash recharge

“Even subscribers with more than Rs600 monthly spend (like some of our team members) are getting these offers as of now (particularly if these subscribers have shown a drop in spend recently),” Credit Suisse said in the report.

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The brokerage said that the move by Bharti Airtel is an effort to counter discounts offered by Jio and it is a clear departure from the former’s strategy of not matching discounts during the competition years of 2010-12.

“While it didn’t make sense to match Jio’s free offer, we believe Bharti has decided that it will not hesitate from matching Jio’s paid offers,” it said.

Credit Suisse said that such moves by telcos are not only Arpu-dilutive, but may also increase costs.

“Even if incumbents retain subscribers with these moves, Arpu compression could be material. Note that incumbent operators get a fairly high share of revenues from higher-Arpu subscribers,” it said.

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