Why Airtel’s 4G Tariff Converge with 3G in some Circles ?

Realince Jio 4G LaunchedIn circles where Airtel offers 4G services, it now offers 4G-LTE data at the same tariff as 3G (in some higher-end dongle plans 4G is even cheaper than 3G). We believe this is a significant event in the life cycle of 3G in India. While we are yet to see any operator launch 4G on 1800 MHz, if the pricing here is the same as on 4G on 2300 MHz (very likely), we foresee a situation where 3G networks will be competing against newer networks of far superior capability (on speed, coverage and cost).

How Profitable is 3G Data Service as an Incremental Offering in India ?
While world over the experience on data profitability is not clear, Indian telcos have consistently claimed that the data business in India is highly profitable (at least 3G data). When seen in pure incremental terms , the only major operating costs that are relevant for offering a 3G service are tower costs and license / spectrum fees. The other costs [HR, Billing, Retailing, Ad Spend, Back-end Infra, etc] are assumed to be shared / absorbed with existing 2G Voice business units.

Recent results have shown that with momentum on voice tariffs showing signs of fatigue, data growth is turning out to be the only major positive angle that bulls on the sector can hang on to (ironically, data happens to be the strongest point for Reliance Jio). In this context, the recent trend in 4G data tariffs is worrying.

Airtel offering 4G services at 3G tariffs (or below) is a significant event—especially for the lifecylce of 3G in India. The LTE offered in India is on 2300 MHz, slightly inferior to 3G on 2100 MHz, in our view. However, in return, the speeds delivered can be significantly higher (our own 4G data speed tests in Bangalore showed average 5-6 Mbps speeds vs 1 Mbps speeds on Airtel’s 3G).

When Airtel launches its 4G services on the recently acquired 1800 MHz spectrum, we doubt the company would price 4G on 1800 MHz any different from 4G on 2300 MHz. Now 3G on 2100 MHz is inferior to 4G on 1800 MHz in almost all aspects — except probably in terms of device price point, a factor that will fade quickly with time. There may not be any market for 3G on 2100 MHz left in India unless operators price 3G on 2100 MHz at a significant discount to 4G on 1800 MHz.

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