Daybreak - Jio and Airtel are fighting a new war to win 120M households

Episode Date: May 21, 2023

In 2016, Jio invested more than $50 billion to roll out a 4G network across India. The move disrupted the telco sector leaving Airtel down at the second place. The other rivals didn't make itThe telecom sector was left in the hands of a duopoly. Now, there is a new war between these two giants and it is over home broadband.In fact, the crown they’re fighting for is to be the go-to service provider for not just broadband but the whole works—a complete suite of entertainment, gaming, and home-surveillance services. What are they up against and how are they prepping to win?Tune in.Recommended reading: Jio, Airtel brace for another epic price war. And it’s not for mobile usersDaybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganesh, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

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A war has begun between the two largest telecom companies in the country. Now, you might say, but there's always some fight or the other going on between them. You're right. But those were what you would call battles. For example, the 4G battle. In the first round in 2016, Jew invested more than 15. billion dollars to roll out the 4G network across India, and it won. The conquest lost it from 2016 to 2021. A dozen rivals died in that battle. Airtel survived it, but it lost the number one

telco crown. The telecom sector was left in the hands of a duopoly. This time, it is war between these two very giants, Gio and Airtel. And it is over home. broadband. In fact, the crown that they're fighting for this time is to be the go-to-service provider for not just broadband but the whole works. Think of a complete suite of entertainment, gaming and home surveillance services. They want to go beyond connectivity and gain control over content and content distribution in the next five to seven years. Now, if you remember in one of the previous episodes of Daybreak, I had told you about how Geo had launched its most affordable fixed broadband plan so far.

Unlimited data at 10 mbps for $198 a month only. Plus, they also made IPL streaming free. Now, this move by Gio, dear listener, was a signal. A signal for the new and possibly bloodiest war we've seen. Because A tell, this time is not going to give up easy. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nick Das Sharma, and I Don't Chase the News Cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays,

I will come to you with one business story that is worth understanding and worth your time. Today is Monday, the 22nd of May. Right now, India has 32 million households with a fixed broadband connection. And Airtle and GEO are fighting to get the lion's shares of the wallet of these. subscribers. Okay, 32 million is a big number, but what more? You see, each of these 32 million home subscribers offer a potential average revenue per user of over 1,000 rupees. The leader of this segment as of now is reliance with nearly a third of the market share, 8 million subscribers. Airtel is not too far behind with 6 million. Geo has a goal to take the same.

6 million to 50 million users. And to sweeten the deal, they are offering a super affordable plan to attract new users. $198 a month, which was launched at the end of March this year. It was of course expected that Airtel would try to counter it with its own cheap plan, which is exactly what it did. Just two weeks later after the launch of Reliance's plan, Airtel launched a plan for $219 a month. But the word in the ground so far is that Gio's plan is already quite a success. Supposedly, students, hostels, shopkeepers are all going for this particular plan.

But like I told you earlier, this is just the beginning of a war that is only going to get bloodier. The fight is not just over broadband. It is about the whole digital experience like Mukeshampani had mentioned. in the annual AGM last year. He had said that Geo was aiming to connect over 100 million homes with unparalleled digital experiences and smart home solutions. Airtel, meanwhile, is kind of lagging behind as it has been since the 4G battle. But again, you know what they say about recovery, right?

The first step is to acknowledge that there is indeed a problem. Sunil Bharty of Bharty Airti Airtel did. just that last month in an interview. He said that the telco could have done better with fixed broadband business. He expressed regret over the company's slow pace of fiber rollout and said that Airtel is now fiercely building optical fiber capacity. Like I said, Airtel is not going to give up easy this time. And this is indeed a great opportunity for the telco to redeem itself. because there is something more about the broadband market in India that is crucial in deciding who wins this war. Stay tuned to find out.

Yes, geo is the market leader when it comes to broadband in India so far. But here comes to twist in the tale which changes the whole game. Only 9% of households in India have a broadband connection. This is one of the lowest rates in the world. we rank 138 globally in terms of fixed broadband adoption. Even Mukeshambani brought it up at the AGM last year. For comparison, Indonesia has twice as many households with a fixed broadband connection. And in China, the rate is a whopping 103%.

So you see, this segment in India is largely untapped. A senior executive at an internet service provider company told us, that subscriptions for fixed broadband can grow by as much as three to four times in the next five years alone. This, as a result, opens up a world of opportunities for content play. About 120 million viewers already pay for TV content. This is based on a report released by Ernst & Young and the Federation of Indian Chambers of Commerce and Industry. out of this 120 million, 2 million are digital only subscribers who only use paid over-the-top or OTT services. They're expected to grow 5 times to 10 million in the next two years itself.

Now imagine this 120 million viewers in the form of a pyramid. At the top of this pyramid is a slightly larger audience segment consisting of 25 million smart. TV users. This portion is projected to increase to 40 million by 2025. The next tier of this pyramid has over 40 million users. They pay for DTH or direct-to-home services while subscribing to at least one OTT platform. Now this group could grow to 100 million in the next two years if OTT content is made affordable. And they are the ones that Gio was started. when it made IPL streaming free on Geo Cinema. The expectation here is that this segment will eventually want to choose a bundled plan

from a single service provider instead of paying separately for TV, broadband and OTT. And this may turn out to be true because data suggests that active paid TV subscriptions are gradually falling in the country. geo and etel want to quickly fill this gap and it is very likely that it is how things will actually play out an analyst told again and you might agree that indians are very good when it comes to managing small expenses now based on this understanding there are high chances that middle and low-income families at some point will see the logic to move to a bundle plan and spend about four to five 500 rupees a month. And that is the dream for the likes of Airtle and Chi. As of now, their average revenue per user from mobile and data is just half of this amount. So to go back to what I told you earlier, the war is about giving customers the best and most wholesome digital experience. And at the heart of it lies broadband, of course. But broadband is a different ballgame altogether.

Coming up next, the challenges in home broadband. The wired broadband space is a bit different compared to the mobile industry. Fibre broadband needs higher operational spending. You have to lay out and maintain the optical fiber network. So it is expensive when compared to the mobile wireless network. Plus, this is India we're talking about. Fiber cuts are quite common due to unplanned digging and a bunch of other reasons. I come from a small town in Darjeeling in West Bengal, and I'm not making this up,

but we literally get messages from our internet service provider saying that the internet is down because the fibre cable was chewed up by monkeys. Things like this happen in a country. Which is why, to win this game, telcos will have to look beyond urban areas. But maintenance costs will be high in these regions, so the pricing cannot be kept too low for too long. For example, the $198 a month planned by GEO is hardly going to make it any money. Plus, targeting paid TV subscribers is one thing, but actually doing well in the business is another challenge altogether. Linear television is, in fact, more affordable as of now. The number of paid TV subscribers is falling but it is not so sharp of all.

Karin Torani, who is a senior vice president at a London-based investment bank, told us that the speed at which paid TV subscribers fall and the pace with which connected TV users grow all depends on one thing. The increase in home broadband and the 5G subscriber base and data pricing. So, winning the paid TV subscribers is not going to be easy. And neither is it going to happen overnight. Plus, as the home broadband market expands,

more and more people will opt for more than one internet service provider. And Gio and Aetel have already set that stage. Daybreak is produced from the Newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature. stories, newsletters, subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website.

I am Snigda Sharma, your host and today's episode was edited by my colleague Rajiv Sien.