Incumbent operators Bharti Airtel and Vodafone Idea might be facing tough competition from Reliance Jio, but they are unlikely to rework their postpaid tariff plans anytime soon by either lowering rates, offering more data, or bundling them with free subscription of OTTs like Netflix to match offers by Jio. There are valid reasons for the operators to have adopted such a stance, apart from avoiding an unnecessary tariff war that may adversely impact their realisations.
Data relating to postpaid users of Bharti Airtel and Vodafone Idea does not suggest any subscriber churn in the post-paid segment with rivals bundling free subscription of OTTs like Netflix into their plans. There was some speculation of a tariff war with Reliance Jio when it came out with a host of postpaid plans on September 22. Jio, which earlier had only one postpaid plan (Rs 199 per month), unveiled plans starting from Rs 399 and going up to Rs 1,499. All plans come bundled with Netflix (mobile-only, single-device plan), Amazon Prime, Disney-Hotstar, and Jio
TV/Saavn/Cinema. All the plans offer unlimited voice and data ranging between 75 and 300 GB per month. Netflix subscriptions are co-terminus with the plans. However, in comparable plans of Bharti Airtel and Vodafone Idea, not only is the data offering less, there’s no Netflix and Disney-Hotstar subscription. The postpaid market is worth around Rs 22,000 crore in revenue terms and forms 15% of the sector’s revenues and 5% of sector’s active subscribers, according to estimates by Jefferies.
Around 50-60% of these subscribers are enterprise customers, and 34% of postpaid subscribers are situated in the three metros and another 36% in urban centric A-circles. Among operators, Vodafone Idea has the highest 43% market share followed by Bharti Airtel at 28%. According to Goldman Sachs, the postpaid subscriber base is very sticky. For instance, it has said that Jio has had a Rs 199 postpaid plan at a 60% discount to Bharti’s entry-level postpaid plan for more than two years now, but Bharti’s postpaid customer data has not seen any change. On the contrary, its postpaid customer base has been marginally up during the last two years by around 0.5 million.
“Our analysis suggests that pricing has a very limited role in the purchasing decision of a postpaid customer,” Goldman Sachs has noted. If one looks at Vodafone Idea, its overall customer base is down 34% in the last two years, but its postpaid customer base is down by just 10% during the same period. In fact, despite Vodafone Idea having a 15% lower 3G/4G customer base versus Bharti, its postpaid customer base continues to be significantly higher than that of Bharti (by about 50%). Bharti and Vodafone Idea have had offerings such as Amazon Prime, Netflix, etc, in a number of their postpaid plans in the past. However, it is unclear if these offerings have helped Bharti gain subscribers in this segment.
According to Jefferies, there are limited risks to Bharti from the new plans of Jio for two reasons. Firstly, with 50-60% subscribers of Bharti being enterprise customers, their focus is less on pricing and more on sustained track record of service delivery. Secondly, with Bharti maintaining 8-25% premium pricing in prepaid and managing churn well, lower postpaid pricing by Jio is unlikely to drive churn materially. Postpaid users form 5% of Bharti’s subscribers and 16% of its India mobile revenues. So it could be that the 40% postpaid users who are not enterprise customers could be open to moving to Jio in case Bharti does not match its offering with that of Jio’s. However, since Vodafone Idea is facing network quality issues, it faces a bigger risk from Jio’s plans and could see a high churn.