India Is the Best Place in the World to Have a Smartphone but That's About to Change

Telecom companies reeling from bruising competition are planning to raise prices.

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India Is the Best Place in the World to Have a Smartphone but That's About to Change

The precarious financial health of Indian telecom players came into sharp focus last week

Highlights
  • Telecom industry is at crossroads in India
  • Airtel, Vodafone, Jio announced their plans to raise tariffs
  • Jio's cut-rate plans were a hit

For cellphone users, India is a kind of wonderland where data is plentiful and very, very cheap. Over the past three years, mobile plans at rock-bottom prices - voice calls and 25 gigabytes of data for $3 a month, anyone? - have attracted tens of millions of new subscribers and jump-started the country's digital revolution. There's only one problem: the low prices have nearly driven several major telecom companies out of business.

The precarious financial health of Indian telecom players came into sharp focus last week when two cellular providers announced disastrous quarterly results. Vodafone Idea and Bharti Airtel revealed record losses of $7 billion (roughly Rs. 50,255 crores) and $3 billion (roughly Rs. 21,538 crores), respectively, for the three months ending in September. Both companies warned that their ability to continue was in jeopardy.

Now the telecom industry is at a crossroads. Alarmed by the state of the business, Cabinet approved a small bailout of sorts on Thursday by postponing certain payments that the telecom companies owe to the government. But it is also clear that Indians are going to have to pay more for the data they have grown to love.

India has the world's cheapest mobile data prices. A gigabyte costs just 26 cents, compared with more than $12 in the United States, according to a recent report from a consumer research firm. But India's prices are "simply not financially viable anymore," said Rajan Mathews, director general of the Cellular Operators Association of India, a trade group.

The three major cellular providers - Airtel, Vodafone, and Reliance Jio - indicated this week that they plan to raise tariffs in December. The increases won't be small, either: they're likely to raise prices by 20 to 30 percent, said Rohan Dhamija, a telecom expert who heads the India and Middle East practice at consulting firm Analysys Mason.

"This is a real inflection point," said Dhamija. "The government is stepping in, and operators are moving to better prices and better financial stability."

The price increases would be the first significant hikes in more than three years. Back in 2016, Mukesh Ambani, Asia's richest man, revolutionised the industry with the launch of his telecom venture Reliance Jio. Reliance slashed prices as it entered the market, forcing other players to follow suit.

Jio's cut-rate plans were a hit, opening the door to wider smartphone adoption in this nation of more than 1.3 billion people. Jio says it has amassed over 300 million customers. Indians are some of the world's largest users of Internet-based applications, including WhatsApp, YouTube, and TikTok.

While the low prices were a boon for consumers, they heralded a painful transition for existing telecom players. Some folded or merged in the face of withering competition. The average revenue per user, a common industry metric, fell by more than 50 percent from 2015 to 2018, according to figures from the Cellular Operators Association.

By this year, there were only three major private players left - Airtel, Vodafone and Reliance - plus two struggling public-sector telecom companies with smaller market shares. Airtel and Vodafone are straining to manage their debt burdens, after having paid high prices to the government when it auctioned off telecom spectrum.

The final blow came last month when Supreme Court ruled on a long-running dispute between the government and the telecom industry and ordered telecom companies to pay fees, interest and penalties amounting to billions of dollars.

Following the ruling, Vodafone and Airtel announced last week's dire quarterly results. "The acute financial stress in the telecom sector has been acknowledged by all stakeholders," said Vodafone in a statement Monday. It welcomed a move by the government to consider "appropriate relief."

On Thursday, the government approved a two-year moratorium on instalment payments due from auctions of telecom spectrum - postponing bills owed by telecom companies worth roughly $6 billion.

But that won't be enough, analysts say. Even after Thursday's move by the government and the imminent tariff increases for consumers, the industry won't be on a solid footing, said Rajiv Sharma, head of research at SBICap Securities in Mumbai. "They will still need more government relief measures," he said, including a possible adjustment to the penalties levied as part of the Supreme Court ruling.

It will take both help from the government and higher costs for consumers to resuscitate the industry, say analysts. For years, "the only way the pricing went was downward," said Mathews. "Those prices were just not sustainable."

© The Washington Post 2019

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