The hyper-growth story of a digital India was fueled since the advent of Reliance Jio, in 2016, resulting in India becoming the cheapest and the second largest mobile internet ecosystem in the world. Just to provide context, the average global price per gigabyte (GB) of data in 2019 was $8.53, whereas the average price in India stood at $0.26 (over 30x cheaper), as per TRAI. However, all of this is set to change in the near future.
India’s mobile and internet market is staring at a potential setting of a floor data price soon. As reported by ET, telecom companies are likely to increase data pack prices by the end of 2020. In addition to this, telcos have proposed a floor price between INR 15 and INR 30 (5x to 10x of the current lowest data price per GB). The net effect of this will likely result in a 25-30% increase in mobile internet prices, with the amount of data available in these packs reducing to half of what we get today. This can have a negative impact on the growing internet user base of the country.
Results of Price Hikes
In July 2020, India crossed the 700 Mn internet user mark, with over 280 million number of users being contributed by rural India. All industry stats predict this number to touch nearly 1 Bn by 2025, driven by a meteoric growth in rural internet users. However, contrary to popular belief, if the envisaged price hikes become a reality, it might potentially derail the entire digital India growth story for the following critical reasons:
The last price hike that took place in December 2019, resulted in the initial phase of negative growth in the sector in the last decade. This was majorly driven by users discontinuing secondary mobile connections due to added costs. However, coupled with the economic stress caused by the Covid-19 pandemic, an additional price hike might result in existing users dropping off entirely. More importantly, the envisaged growth drivers in the near future – i.e. the rural users – are highly price sensitive. Increase in data prices will continue to discourage these users and slow down the pace of adoption in this user cohort
Second, with mobile internet data bundles packing in less data on offer, users will be forced to restrict their digital consumption (something that they have learnt to take for granted over the last few years). This might further reduce the value economics and discourage users from adopting internet altogether or, more likely, create periods of inactivity amongst users
Telcos understand very well that consumers nowadays are heavily dependent on data that they will not flinch at paying higher tariffs. The low tariffs over the past three years have got them addicted to using excessive amounts of data for personal and business purposes. Data consumption, for instance, has risen from 240 MB per user in July-to September 2016 to 9.77 GB per user in April-to-June 2019 – an exponential 42-fold rise. There are two fronts on which the new data tariff hike will show its impact i.e. data consumption and subscriber addition. As per analysts, the data consumption in India is expected to take hit by 20% on account of the data tariff hike.
In the midst of changing tariffs and regulations, consumers who benefitted from the fierce price war between the operators would now have to bear the brunt of increased tariffs. Any hike should be accompanied with an increase in quality. With call quality going down month-on-month and a corresponding increase in tariff, it will definitely have an impact on the entire digital ecosystem.
The price hike by telcos and ISPs is inevitable. To provide context, the Return on Capital Employed (ROCE) for the telecom sector in India today is pegged at under 1% (i.e. Investing in a Fixed Deposit with a bank is 6 times more profitable than investing in telecom!). If the dream of a Digital India, where people across strata get access to affordable and reliable digital access, needs to become a long-term reality, things need to change fundamentally.
The government also acknowledges this reality and, with recent initiatives like PM-WANI, such transformations are being undertaken at scale. However, beyond policy, the ecosystem will also have to adopt disruptive technologies and collaboration / business models that result in a sustainable ecosystem. This is where technology companies will help ISPs and telcos to enhance network reliability, optimize CapEx and OpEx, create new monetization opportunities and drive economic viability for across geographies and user segments.