Jio’s launch two weeks ago has caused a stir in the telecommunications industry. Calls and messages on the new network are free while mobile data is 3 to 5 times cheaper compared to competitors. For Jio as a disruptor this is a reasonable strategy: Silicon Valley’s leading VC Peter Thiel has said that “[start-ups] have to be 10 times better than second best”.
But in addition to rattling up the stock market, Jio’s strategy is likely to have a longer and beneficial impact on India’s digital ecosystem.
Jio has thrown a glove to other mobile operators by slashing service costs for consumers. While Jio’s offering is only available to LTE customers, that is not relevant: consumers on 2G or 3G will ask their carrier, why do they need to pay 3x to 5x more for slower internet speeds? This is likely to create a pricing war between India’s mobile operators. Such price wars have been commonplace across the world, latest example being Singapore just a few months ago.
As prices go down, more people will switch on their mobile data services for the first time. GSMA Intelligence estimates only 15% of people in India used mobile broadband in Q4 2015, while smartphone ownership would allow much higher rates already today. Cheaper data increases the share of smartphone users who use mobile data but also incentivizes feature phone owners to upgrade to a smartphone as the main benefit (online access) becomes affordable.
It wouldn’t be an exaggeration to say that this would accelerate the progress of digital democracy or the vision of digital India by breaking the perception barrier among the bottom of the pyramid. “Data is for everybody” would be the new mantra.
This will also spur the growth of affordable 4G devices and a multi-SIM environment; further reducing the customer loyalty towards the network. Customers will keep on switching for better price or data bandwidth.
This in turn helps the digital ecosystem grow. While India’s own services like Ditto TV, Hooq and Gaana are already present in the market, a majority of global digital merchants do not have India in their sights yet. Beside few smartphone owners and lack of access to online payment methods, low mobile data penetration has been one of the key roadblocks.
Globally, average Netflix users watch 133 hours of video per month which translates into roughly 133 gigabytes (GB) of data consumed. The average Spotify user listens to 28 hours of music (34-35 GB data) per month. In Western markets a large portion of this content is consumed through landline internet, so such data volumes are not an issue. But for a mobile-first market like India, they have so far made such digital services inaccessible to a large part of the population.
Reduced cost of data will then result in a bigger uptake of digital content services as users can consume more for less. Local providers will be able to increase their audience while international merchants like Netflix, Spotify, Apple and Amazon are going to reconsider their strategy for India in light of the changing ecosystem.
With the challenges of mobile data considerably reduced, all other factors point to growth and make India one of the most attractive markets for global merchants.
Another consequence of the data revolution is voice over IP services like Skype, Viber, and others will get more acceptance in the eco-system from the telecom operators; while this will create more opportunities for them we can see many home-grown companies ready to challenge their hegemonies. Obviously, for customers the more means the merrier.
While the pricing war will create a temporary setback for carriers, in the long run everyone will benefit. Consumers get affordable internet and access to more digital content. Carriers will be able to increase user stickiness (by negotiating and offering exclusive deals and co-promotions with digital service providers) and average revenue per user (from both increased data consumption and from providing carrier billing for these services).