Why Airtel should cut 4g tariff before, not after Reliance Jio 4G launch

telecomThis week saw the beginning of something interesting. Airtel, India’s biggest telecom company and the biggest rival of Reliance Jio, cut its 4G prices in select circles.

The new tariff basically doubles the data on offer for each recharge till Rs 850 with the result that you now get 10 GB for Rs 850, instead of 5 GB earlier.

However, what is interesting is that Airtel has done this only in those places where Idea Cellular has launched its 4G. And the reason for that is not far to seek either.

Idea started its services by offering double the data per 4G recharge compared the prevailing rates. Airtel’s choice was simple – either cut tariff to match those of Idea Cellular or see its users move over to the new entrant. Not surprisingly, it chose the first option.

TIP OF THE ICEBERG

What has happened with Idea is only the tip of the iceberg.

Airtel and Vodafone may point to how they survived the ‘low price’ strategies of RCom and Tata DoCoMo, but seeing data services as analogous to the voice market may turn out to be a big strategic mistake.

Data users, especially those who use more than 5 GB per month, are notoriously fickle in their loyalties.

That’s because a voice user has to think about a hundred things before moving to a new operator.

They have to use mobile number portability so that they don’t lose their existing number. They also have to worry about mobile signal availability, not just at their home and office, but also in all the places they visit regularly.

As far as voice is concerned, tariff is only one of the factors, and coverage and network are often as important.

But, the world of 4G is very different. Here, users don’t care if their 4G service is available in each and every town in their state.

Instead, they are primarily worried about availability in their primary places of use — home and office, and perhaps along the way.

Second, for data, they don’t have to go through the number portability route.

They can get a new number from the new operator, slip it into their second SIM slot on their mobile or into their MiFi device and are good to go. They can continue to use their old number to make and receive calls, while using the new 4G operator for accessing cheap data.

In other words, tariff and ‘speed’ occupy a much more crucial role in 4G than they did in voice.

JIO CHALLENGE

Going by initial indications, Reliance Jio grasps this fact very clearly. However, there is one big operator that also knows this — Idea Cellular, which has a higher proportion of users coming from rural and extremely price-sensitive markets compared to Vodafone and Airtel.

That is the reason why Idea did not wait for Jio to launch to cut prices. Rather it launched with a 4G tariff that offers a 50% discount to its 3G pricing.

However, both Vodafone and Airtel are choosing to wait till Jio launches in early March before cutting their prices.

ALL ABOUT PERCEPTION

Superficially, it may appear to be a smart decision. After all, if you can keep prices high for another two months, why not?

The problem is that consumer businesses are all about customer goodwill and perception.

Right now, Reliance Jio clearly has an edge as far as customer goodwill is concerned. Many customers look at Mukesh Ambani as the knight in shining armor, riding fast on horseback to deliver them from the tyranny of high data prices.

Meanwhile, Airtel and Vodafone are seen as the companies who try to keep prices high down to the last moment.

And the current 4G strategy of the big two operators play into this story.

Now, even if they cut their price on the same day as Jio announces their cheap 4G prices, guess who will get all the credit?

Of course, it will go to RJio, which will be seen as having forced these operators to reduce prices.

By cutting data prices at that stage, Airtel and Vodafone will simply add to the aura of strength and invincibility built up around Jio.

Even the customers of Airtel and Vodafone who don’t switch will feel indebted to the new entrant.

In fact, Reliance has been extra careful about cultivating its image in the minds of the consumer. For example, even as all other operators urged the TRAI to let them price data differently for different services, RJio was conspicuous in its silence.

So what should the big ones do? Simple: Cut prices, across India.

Pricing is going to be, without doubt, the single biggest competitive differentiator for Reliance Jio. By cutting prices well before the launch, the incumbents can neutralize the edge, and rob the new operator of its biggest USP. This makes even more sense when you consider that price cuts are inevitable after the launch.

If, for example, Bharti and Vodafone price 10 GB at Rs 699 or so, and Jio launches with a tariff of 599, there is unlikely to be a mad rush of customers to the new network.

On the other hand, if the duo continue to price their 10 GB pack at 1,000-1,500 (as they do now), serious data consumers will be queuing up outside the new operators’ stores with porting applications.

Of course, they can cut their prices immediately to address the outflow, but they will be seen as weak players who are forced to respond to a newcomer despite their claims of superior coverage and so on.

This feeling is best captured by a social media comment made by a user recently.

“This greedy (operator) was charging rs.8 for ougoing call and rs.4 for the incoming call before reliance come to telecom service and same company is still looting customer by charging rs 255 for 1 GB data… See the situation after jio start the service, they will reduce their rate equal to jio.”

Of course, there is a chance that RJio is not actually planning to offer 10 GB at 599, or even 699, but at 1,000. In that case, the incumbent operators would have made a tactical and financial blunder by cutting prices in anticipation.

However, such a development can easily be rolled back by withdrawing the price cut. Idea seems to have already anticipated the eventuality in calling its prices “promotional”, and valid till March. In case the new operator prices data at higher rates (a remote possibility), the incumbents can simply withdraw the “promotional offer.”
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