Race to the Bottom

In May, Reliance Communications announced a 10 GB-4G data offer for just Rs 93. It grabbed everyone's attention instantly as the price was unbelievably low. Till then, no telecom operator had come up with such an aggressive offer. But as it turned out, the offer was valid for just 28 days for existing RCom subscribers who were upgrading from CDMA to 4G.

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In India, a bulk of data users are on 2G networks and are largely prepaid customers who do not want to spend more than Rs 100 per month on the Internet. For greater reach of 4G services, it was crucial to keep the tariffs below Rs 100 for a 1 GB plan. Else, consumption would largely remain restricted to postpaid, high-value customers in metros and other major cities.

The latest price cuts for 4G data plans were triggered by Airtel, which announced 25-67 per cent more data at existing rates. Idea Cellular responded by slashing 3G/4G data rates by 67 per cent. Reportedly, Vodafone is also planning to cut rates. However, despite the cuts, the cheapest 1 GB data plan offered by Airtel costs Rs 259 for 28 days.

In fact, relatively high costs of 3G data packs and patchy services have not really caught the fancy of the masses. There are just over 100 million users in the six years since the launch of 3G services. Now, the early adopters of 4G have also been a section of 3G subscribers.

At best, the current price cuts by telcos are attempts to retain their user base and increase data consumption of existing users, instead of creating a new set of 4G customers. The only options before the service providers to woo 2G customers to 4G are low data prices and cheap handsets. RCom's offer was attractive because it offered high-speed Internet below Rs 100 for 1 GB data.

Experts are keeping a close watch on Reliance Jio, which claims a 1.5-million subscriber base, even before its launch, and has indicated its intentions to offer data at disruptive prices. At present, it is testing the market with its own 4G smartphone brand LYF, which is bundled with 90 days of free unlimited 4G mobile Internet and voice calling. The cheapest handset costs Rs 2,999.

"The offer on recharge packs is aimed at delivering significantly higher value to our regular Internet users. Our consumer research studies have indicated growing demand for affordable high volume internet packs," Sashi Shankar, CMO, Idea Cellular, had said at the time of reducing data tariffs. However, it is going to be tough for telecom operators to bring down tariffs given the cost of operations.

The only way tariffs can come down is a price war by one player. It will then force others to adopt a similar price band. And, RJio, the new entrant with deep pockets, could make that happen.