It’s been almost two decades since the Indian telecom industry started somewhere near 1995. It’s been a roller coaster of a ride with the industry having various ups and downs all along. A good part of these two decades have been focussed on voice. It’s not until 2010 that data really started playing a role in the Indian telecom sector, thanks to the freshly auctioned 3G spectrum and the splurge of Android smartphones that flooded the Indian smartphone market in the following years. However, voice still remains the most dominant source of revenue for India’s top telecom operators namely Airtel, Vodafone and Idea.
Whenever something threatens the voice revenue of AVoID (Airtel, Vodafone, Idea), they immediately have a knee-jerk reaction. I’ll list out some of the instances below.
During the tenure of the telecom minister, Mr A.Raja, when several firms had got a telecom license in India at dirt cheap prices, one of their differentiating tactics was to charge on a per second basis, and this was a huge hit with customers. Following the Supreme Court ruling regarding a scam in following years, many of these operators had lost their licenses and were planning to exit India or scale down significantly. With the exit/scale down of these new entrants, there was a fear that the AVoID group would eliminate per second pricing. This fear prompted TRAI to make it mandatory in April 2012 for every telecom operator to provide at least some form of per second calling plan.
When a year later, in April 2013, TRAI had recommended abolishing roaming charges, AVoID was against it. Ultimately though, rate cutters were introduced to reduce roaming charges, but they weren’t completely abolished. Some have suggested that the TRAI paper on abolishing roaming charges was something that AVoID was pushing for, as they have pan-India voice networks compared to Telenor, Videocon (at the time of 2013) which had operations in selective circles making it difficult for the smaller operators like them to be able to provide competitive roaming packs as they had to strike roaming deals in circles where they didn’t operate.
When Whatsapp added voice calling to its app, Airtel immediately brought into effect a VOIP pack asking consumers to pay additional charges even after they had paid for data packs. A huge outcry for Net Neutrality and the accompanying negative publicity made Airtel pull back the controversial VOIP pack.
The latest in the series of AVoID trying to protect its voice revenues is not allocating interconnect ports to Jio, leading to a large number of call failures. AVoID justifies itself saying that they don’t have the network or financial resources to terminate Jio’s humongous amount of incoming voice calls.
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Why is AVOID so concerned about voice?
The answer is pretty simple, as close to 70-75% of AVOID’s current revenue comes from voice. Despite the growing relevance of data, investors still put a lot of focus on voice. It’s not uncommon for investors to drive the stock price of a telecom company up or down depending upon the growth/decline of voice minutes and growth/decline of Average Revenue Per Minute (ARPM). In fact, when Reliance Jio announced that it would make voice calling free, the stock of Airtel and Idea took a 6-9% dive, the stock price of Idea was at some of its lowest levels ever. It’s understandable why AVoID cares about voice and responds so fiercely to anything that threatens this, but is fighting over voice really worth in the long term?
Not allocating POIs (Point of Interconnect) and rejecting MNP requests
AVoID is trying to sabotage Jio’s launch by not allocating POIs and declining MNP requests. According to media reports, Jio faced a call drop failure rate close to 65% during its trial period. Also, as per some reports, AVoID has rejected the porting requests of RIL employees. I expect them to continue the same for end consumers trying to port to Jio, as current porting rules require the donor operator (operator from which you’re porting out) to approve the porting request before the port out can take place. But will this really effect Jio?
I personally feel that AVOID’s explanation for not allocating POIs is wrong. The very reason that termination charges exist is to compensate the operator on whose network the calls are being received. If AVoID is getting huge incoming traffic from Jio, then it’s more than adequately compensated by the termination charges Jio pays for those calls. At the end of the day, by not providing POIs and denying MNP requests, it’s only AVoID that’s going to find it tougher. In its terms and conditions page, Jio has mentioned a particular condition for Jio Welcome Offer as follows –
RJIL reserves the right to amend/extend the special benefits for the existing customers beyond 31st December 2016, in case they are not able to get adequate experience of seamless connectivity across network due to POI congestion with due intimation to the Authority
What the above mentioned condition means is that if Jio isn’t able to get enough POIs from the incumbent operators, it will end up extending its Jio Welcome Offer of free calls and data even further. Now I can agree that AVoID not providing POIs makes Jio’s network look bad to the end user which would prevent them from adopting Jio as their primary number.
But what AVoID seems to be forgetting is that close to 90% of smartphones in India are Dual SIM capable. Even if by blocking MNP requests or not providing POIs, AVoID can cannibalize Jio’s call offerings, they can’t cannibalize Jio’s data offerings. No one would be hesitant in buying a Jio SIM and using it as a secondary SIM for data alone while using their primary SIM for calling alone. Jio’s 4G network is pretty solid, yes there are certain issues but it’s definitely worthy as a data only secondary SIM especially since its being provided for free and has a generous limit of 4GB per day.
At the end of the day, AVoID is at a loss financially by not providing POIs and blocking MNPs. Jio doesn’t even want to be a calling company, Mr Ambani’s speech made it evidently clear that they are planning to focus completely on data. Jio isn’t even making any money out of calls as all their data packs have voice bundled for free. The lesser people use voice on Jio, the better it is for Jio as their termination fees would be lower thereby improving their margins. But one thing that is clear is that the more AVoID delays providing POIs or blocks MNP requests, the more Jio will extend its Jio Welcome Offer. For every month that the Jio Welcome offer exists, AVoID is collectively losing millions of customers to Jio. These millions of customers make data recharges anywhere from Rs 250 to Rs 2500 per month. All this data revenue is being lost to Jio.
Jio is a greenfield operator, they don’t have any legacy telecom revenues to take care of. Apart from that, Jio’s parent company RIL has a refinery business that’s one of the most profitable in India. By comparison, AVoID’s major source of revenue growth as of now is data, even if it’s a small part of the overall revenue pie. Every single month that Jio provides free voice and data equates to not only one month of incremental revenue loss for AVoID, but also loss of current data subscribers. As of now, Reliance Digital Stores are flooded, but as time passes by time the foot traffic is bound to reduce, also Jio always has the option to activate its third party sellers to manage distribution of SIM cards better.
Threat of VOIP calls and the loss of identity
Even if Jio doesn’t change the voice market, there’s a pretty good chance that OTT apps will. According to an estimate, Whatsapp is already present on more than 95% smartphones of India. VOIP calls don’t work on 2G, they work ok-ish on 3G but their performance on 4G/Wifi is pretty decent and comparable to that of traditional calls or even better sometimes. More and more telecom operators are rolling out 4G in India. If two people own a 4G smartphone and have LTE, they’ll definitely make a call on Whatsapp rather than paying the telecom operator. Best part about VOIP is that Airtel’s attempt to charge for VOIP has already backfired badly and now with Jio in the market with free voice calls, none of the incumbent operators can attempt to charge for VOIP as it would only make them look even worse against Jio. My assumption is that when Airtel originally introduced the VOIP pack, they introduced it on the belief that Vodafone and Idea would soon follow. But following the negative publicity and the public backlash on Airtel, Vodafone and Idea didn’t opt for VOIP packs and Airtel had to revert as well.
The only thing that can stop VOIP as of now is if the regulator themselves decides to impose certain conditions and rules on VOIP, but that’s highly unlikely in the near term considering the public sentiment towards Net Neutrality. I am aware that Net Neutrality and rules for VOIP aren’t the same thing, but in my opinion, the end public as of now considers any attempt to make VOIP costlier as an attempt to violate Net Neutrality. Take for example, Reliance Jio’s announcement that data used for voice calls on Jio’s network wouldn’t be counted against the data packs whereas data used by Skype/Whatsapp etc would be counted. Jio is in effect zero rating its own calling service while deducting data for Whatsapp/Skype. Theoretically, this is also a violation of Net Neutrality, but has anyone made a big fuss out of it? No. Because at the end of the day, things become cheaper for the end user which is why he/she doesn’t really bother.
Another understated benefit of VOIP is that the power of identity in case of VOIP rests with the app and the telecom operator becomes a mere dumb pipe. For example, let’s say I have registered for Whatsapp on my Vodafone number, but this registration is a one time process only. Once I finish the registration, I am free to use internet from any telecom operator of my choice or ISP of my choice and my Vodafone number still remains. Thereby what matters in case of VOIP is selecting the operator that provides great connectivity at cheap prices, identity and by extension MNP aren’t a issue as the number from which data is being and the number on which Whatsapp is registered are totally different.
I had already spoken about this topic in my last article, but let me briefly mention that here as well. TRAI is already in the process of revising interconnect rates. Interconnect rate is basically what an operator from whose network a call originates pays an operator where the call terminates. Currently, the rate are 14p/min for mobile to mobile and nil for any call originating or terminating at landlines. TRAI plans on making it nil for calls originating and terminating at mobile phones as well. The fate of the revision of interconnect rates for mobile phones would be known only by next year. If TRAI makes interconnect rates nil for mobile phones as well, then one of the biggest cash generators for AVoID would become redundant.
I have also previously mentioned how interconnect charges depend on ratio of incoming call minutes between two networks. The network with higher incoming call minutes is the net receiver of termination charges while the network with lower incoming call minutes is the net payer of termination charges. This model has greatly benefitted AVoID as their high subscriber base and high tariff plans means that they have received termination charges for the most part. However, as time passes by, I believe India would be a telecom market of 4-5 players who have subscriber bases in close vicinity to each other which would mean that no one operator would greatly benefit from termination charges in case every operator starts providing unlimited calling with their data packs.
All in all, interconnect rates are one more reason why operators shouldn’t really have any expectations of making big bucks from voice for a long term.
Too slow to respond?
I can understand why AVoID gets upset when their voice revenues are threatened. AVoID has been present in the Indian telecom market for close to two decades now. Idea was formed after the Birla-Tata-AT&T partnership gradually broke away, while Vodafone was formed as part of several acquisitions that were later woven together. AVoID has been in at least some form present in the Indian market for two decades and in this time, AVoID has worked hard and navigated through various obstacles such as uncertainty in regulations, taxation, foreign competition etc to build itself a moat in the voice market. Whenever someone threatens to break this moat, they almost always have a knee-jerk reaction and that’s understandable. I mean which company wouldn’t react when as much as 70-75% of their overall revenues are at stake?
But the thing is evolution is necessary for companies to survive. Granted that voice has been what AVoID has worked towards for as much as 15 years in their 20 year history. But data is the future and everyone knew it ever since cheap Android smartphones started flooding India. Globally, data is what most telecom operators charge for, even our neighbouring country China has operators whose 4G subscriber base and data revenues are both greater than 50%. It’s only logical for India to move on a similar path. Jio’s entry was pegged around 2014 or so, its entry has actually been delayed by 2 years and every single telecom operator knew right in 2010 itself that Jio would bring about a data tariff war and it was in their best interest to have garnered a much more significant share of India’s data market and even expand it before Jio’s entry.
A part of me feels that it isn’t even AVoID’s fault. What really made things worse for them was the Indian government. For a market that was accustomed to having spectrum and licenses allocated at dirt cheap prices, conducting a 3G auction that would be one of the most expensive in the world would only lead to disaster. This disaster is evident as even after 6 years of 3G’s introduction, only 8-10% of India’s mobile subscribers are on 3G. One could argue that AVoID could have reduced their data tariffs and expanded the market, but the ones that tried to do that such as Tata Docomo and Aircel ended up with financials that didn’t let them further invest in their 3G networks and they aren’t even a part of the 4G game as of now.
The disaster of 3G and the inability to make data a significant contributor has left AVoID highly dependent on voice even two decades after the introduction of telephony services in India. But I don’t think it’s gonna provide any further growth. The voice market is fully saturated and there’s 1-2% growth in voice volumes Y-o-Y and either depreciation or appreciation in ARPM of few basis points every quarter. All in all, the voice market has reached its saturation point, there’s no more growth left to squeeze out. In fact, given a few more years, the voice market’s revenue will only decline. Like it or not, data is where the future lies. AVoID can do whatever they can in their capacity to protect the voice market, but one way or another, it’s going to die.
It’s time to bid goodbye to voice.