3G mobile Data revenues in India for incumbents are incremental to Voice revenues initially because initial 3G adopters are relatively high-income subscribers whose telecom bill is a very small proportion of their total disposable income. These subscribers maintain their voice consumption despite incremental data usage (largely for entertainment and continuous Internet connectivity). These subscribers do not reduce their voice usage intentionally (however, there might be some unintentional reduction in favor of alternative data-based channels of communication). Hence, data growth drives increases in blended ARPU (without impacting voice ARPUs meaningfully). However, as 3G data proliferation accelerates (say, beyond 20% of total wireless revenues), incremental data revenues come from relatively lower income subscribers, who manage their telecom bills actively.
The broader subscribers tend to reduce voice consumption in order to increase data usage and use data services / applications as a partial alternative to voice. Hence, continued data revenue growth is likely to come at the cost of voice revenues. We expect to start seeing this trade-off in India within the next two years. The reasons are not hard to understand. Voice communication through data (i.e., VoIP using applications such as WeChat, Viber or Skype) is much cheaper than a normal voice call. One minute of voice chat on VoIP costs 60% less than a traditional voice minute.
And the impending threat from Reliance Jio Launch on Incumbents
Reliance Jio Infocomm which recently stress tested its 4G-LTE backed Wi-Fi network at IPL Match in Wankhede Stadium is all set to launch nationwide in the next 2-6 months with its 4G data services (along with VoLTE services). The early adopters of 4G services are likely to be high-income (mostly post-paid), relatively less price-sensitive metro and Category A circle subscribers. These subscribers and enterprises (another important client base for Airtel) prefer / demand faster data speeds and better quality, and they can afford the expensive devices that support 4G.
Airtel generates about 54% of its revenues from Metro and Category A circles, and the company is perceived to have high-quality subscribers in urban areas while Idea Cellular generates about 48% of its revenues from Metro and Category A circles and is more penetrated in semi-urban and rural placed.
As Indian consumers graduate to Higher Mobile Data Speed from EDGE to 3G to 4G-LTE, we’ll witness at least one major Mobile Data Tariff War within the next 6-12 months.