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Data revenues may gather speed as debt-ridden telecom companies consider strategies to grow their top line

Disruption is a way of life for the telecom industry. With India already home to one of the lowest voice tariffs in the world due to intense competition, the battle has now spilled over to data. In a move reminiscent of a recent e-commerce mega sale, Chennai-based Aircel, the sixth-largest player in Indian telecom, has launched its Grand Online Data Sale which offers discounts on WAP content including music, videos, games and wallpapers along with offers of 20% extra on online data recharge. The idea, according to Anupam Vasudev, chief marketing officer of Aircel, is to give customers the experience of a one-stop online shop for all their data needs. Tata Docomo, too, has commissioned advertisements hinting at huge cuts in data tariffs. But whether these moves by smaller players will trigger an industry-wide price war in data remains to be seen (see: Pay as you surf).

An industry analyst points out that no pan-India incumbent has slashed data prices so far, hence suggesting that there will be no replay of the previous price war in voice, which brought down the average revenue per user of telcos. “Most telcos were cash-rich in 2010. But they are bleeding after ferocious bidding during the 3G auction. There is no headroom for them to cut prices as volumes are not increasing and costs are accelerating,” says the analyst. Romal Shetty, telecom head at KPMG, also says that a price war in data is unlikely. “Voice prices are already inching up. Data prices may go down a notch but an all-out war is unlikely, given the high levels of debt in telcos’ books,” he says. Most telcos will also be wary of any dramatic price disruption because of the sector’s history. “Telecom is an industry where disruptors don’t profit from disruption,” says Hemant Joshi, telecom partner at Deloitte Haskins & Sells.

Companies will probably adopt a wait-and-watch approach since any price war in data will be correlated to the kind of disruptive strategy Reliance Jio uses to launch its 4G services in a market crowded with incumbents. With the possibility of a price convergence between 3G and 4G, Shetty admits that there’s a chance we may skip an entire generation, moving directly from 2G to 4G.  

While the gradual adoption of 3G among consumers has led to a rise in the share of data in telcos’ revenue from 9.3% in 2010 to 18.5% in 2014, 3G adoption remains a measly 7% of the total wireless subscriber base. “For their investments to yield good returns, the share of data in telcos’ revenue will need to go up to at least 25%. The global average is around 30% while in countries like the US and UK, it is as high as 50-60%,” says Shetty. Having invested a lot in 3G spectrum, telcos will try to recapture value from existing data services in order to survive, says Joshi.

A PwC report predicts that unconventional data monetisation schemes will make their appearance in 2015. “These would span strengthening of internal capabilities to offer a differentiated network experience (smart pipes), as well as harnessing the extended ecosystem, including over-the-top (OTT) players,” it says. Shetty says that different companies will have differing strategies. “So a company like Aircel — which cut down on operations in many states during restructuring and whose capacity utilisation is low --— will try to rebuild capacity and gain subscribers, while a company like Airtel — with full capacity utilisation —will try to maximise revenues by coming up with data monetisation schemes involving both B2C and B2B revenue models,” he says.

In fact, data monetisation has already begun. Airtel recently tried to introduce VoIP (Voice over Internet Protocol) packages, charging its data subscribers an extra 4p/10KB on 3G, and 10p/10KB on 2G for making VoIP calls on websites such as Skype and Viber. However, it rolled back the programme after severe protests from consumers against violation of net neutrality: the idea that all transmitted data should be considered equal by internet service providers (ISPs). However, there are no laws against net neutrality in India. Rahul Khullar, chairman of telecom regulatory authority of India (TRAI), also says that Airtel’s move isn’t illegal since there’s no law upholding net neutrality.

Airtel issued a statement that it made the decision following news reports that TRAI would be coming up with a consultation paper on regulating OTT players by the third week of January and in the process, bring more clarity to the issue of net neutrality. OTT services are those which pose competition to the very telcos who provide the Internet to enable their services. This includes instant messaging applications such as WhatsApp and VoIP services such as Skype and Viber. 

“We have no doubt that as a result of the consultation process, a balanced outcome would emerge that would not only protect the interests of all stakeholders and viability of this important sector but would also encourage much-needed investments in spectrum and roll out of data networks to fulfil the objective of digital India,” said the statement by Airtel.

Most analysts maintain the view that net neutrality in its present form is a doomed concept. The current paradigm — telcos spend a fortune building an information highway and some upstart Internet company comes and chokes the highway with data without paying the telco a paisa — will destroy the industry. “Those supporting net neutrality have to understand that too many free lunches will kill the telecom industry. When unfettered applications sit on the network and eat away spectrum without corresponding revenue, then the entire industry is hurt and eventually, so is the consumer. TRAI should come up with a fair revenue-sharing agreement,” says Joshi. Shetty, too, supports the proposition of OTT players being brought under the purview of the regulatory regime since it is unfair that they pay neither the telcos nor the government but get to cannibalise revenues from telcos.

It seems like the telecom industry is stuck in a kind of contradictory limbo, with a crowded marketplace and unfavourable M&A regulations that make consolidation unremunerative and expensive. Also, players have divergent strategies: smaller players such as Aircel are trying to make inroads into a crowded data market through price disruption, while incumbents such as Airtel are looking to add new revenue streams within existing data services. However, the steely thread linking both telcos’ strategies is that of data being the next source of earnings growth. And with the upcoming spectrum auctions in February and launch of pan-India 4G services by Reliance Jio sometime between April and June, the data war is only set to heat up in 2015.