In recent days, Airtel, IDEA, Vodafone and Tata DoCoMo, have cut their “pay-as-you-go” data tariffs by 80-90%. The headlines look catchy, but it applies to only certain plans or when the customer exceeds the existing allowances. Yet again, everyone is following each other, which again shows that trying to differentiate in India is difficult.
For 2G data, Airtel’s data pricing is down to 1p/10 KB, while peers have reduced the price to 2p/ 10 KB from 1-2p per KB – this amounts to 80-90% reduction on the “pay-as-you-go” tariffs. In most of the cases, 2G data price cuts have been done in circles where these telcos didn’t win 3G licenses.
The current data bundles are priced at around 20p/MB or US0.4c/MB, which is cheaper than these ‘pay-as-you-go’ plans. But the ‘pay-asyou- go’ plans could act as a hook to attract new customers (given its convenience) and can also help with churn reduction. Moreover, data penetration rates are currently sub-10% and data revenue contribution is 7-9%. So at this stage, we don’t think these price cuts alone will have a material downside impact on earnings as pay-per-use subscribers is a still a very small part of the total usage / base.
Potential for Mobile Data Services in India
We don’t dismiss the inherent data potential in India, but are concerned about how much it can grow given the lack of spectrum and limited capex spend. Data (mobile internet, excl. SMS) is growing rapidly and is up 60-70% y-y in the past few quarters for Bharti, eg, although from a very small base. Within this pricing has come down by over 20% we estimate, but has been more than offset by usage growth of close to 100% y-y.
Data adoption by subscribers has moved up from 19% to 23% only (for Airtel), and there is room for this to improve. While these early indicators are positive, we are still not at the inflection point for data and 3G adoption hasn’t picked up pace as one would have expected.