While Bharti Airtel is introducing 4G services in select markets, it is also trying to focus more on 3G, which so far has failed to generate much revenues for the mobile operator

Bharti Airtel, the country’s largest telecom operator has slashed its tariff for third-generation (3G) services by as much as 70% for select plans. Separately, the company is launching its fourth-generation (4G) services in select markets. This shows Airtel’s new agenda is to focus more on data services and simultaneously increase subscriber base, rather than just adding new subscribers for its voice services. After all, it has paid thousands for crores for the spectrum. However, the question is what took the operator so long to go down this path?

It has been over two years, since the government auctioned 3G spectrum and broadband and wireless access (BWA). At the same time, I wrote that as fallout of 3G auction, call-based tariff will give way to data-based tariffs. I also suggested that after the 3G rollout, the possibility of massive increase in data-based services will give mobile operators an opportunity to create products and tariff plans with data-based services as the base product instead of voice-based services, thus unlocking new revenue segments.

However, not much has happened in past two years. Many mobile operators have launched 3G services, but either the tariff plans were not affordable for common mobile users or the data services lacked the required ‘punch’. The latter is true in most areas. Many subscribers complain that their 3G connection is slow and discontinuous. For example, while travelling on Central Railway in Mumbai, we often found that there is no network on the Sion-Kurla-Ghatkopar belt. If the basic mobile network is not there, then a 3G network cannot surely work.

While there are issues with continuity on the 3G networks, the tariff plans of most companies are too expensive. In India, about 95% people use pre-paid services and not many are ready to shell out more money under the pretext of 3G data services. For example, in Mumbai, while Vodafone charges minimum Rs102 for 3G plans which offers 100MB data, Airtel charges Rs41 for 140 MB data on its 3G network. MTNL, on the other hand offers 130MB free data on its 3G network for Rs99. Tata Docomo charges minimum Rs90 for 200MB data on its 3G network in the Maharashtra and Goa circle. These plans have a validity of 30 days.

Coming back to Bharti Airtel, during the fourth quarter of FY12, the company’s blended average revenue per user (ARPU) per month increased marginally to Rs189 from Rs187 a quarter ago. While the company undertook price hike of about 20% for on-net prepaid calls for all of its 22 circles during second quarter of FY12, in current market scenario the same is not possible due to persistent competitive intensity and un-sustainability of a tariff hikes.

During the quarter to end-March, non-voice revenue, which includes voice mail service, call management, Airtel Talkies and other value-added services like hello tunes, music-on-demand and Airtel Live contributed to about 14.4% of the total revenues in the mobile operators’ balance sheet. This may have prompted the company to look at other avenues, like data services for increasing revenues. The aggressive tariff cut for 3G services is nothing but an effort to garner more subscribers and money.

Although company has a very small chunk of revenue coming from 3G from its 9 million subscribers, reduction in data plan tariff would help to increase 3G subscriber base and play a volume game. All major mobile operators are spending huge money on 3G advertising to attract more customers. Airtel has taken a step to be in line with its peers who are also coming up with many attractive schemes like Re1 for downloading a video or song.

After introducing its 4G services in Kolkata last week, Bharti Airtel launched it in Bengaluru. The company is offering 6GB of data on its 4G—long term evolution (LTE) network for Rs999 per month. LTE, marketed as 4G LTE, is a standard for wireless communication of high-speed data for mobile phones and data terminals. The LTE specification provides downlink peak rates of 300 Mbit/s, uplink peak rates of 75 Mbit/s and quality of service (QoS) provisions permitting a transfer latency of less than 5 milliseconds in the radio access network.

In 2010, Bharti Airtel paid Rs3,314 crore for 4G license in four circles, Punjab, Maharashtra, Kolkata and Karnataka. It has been allocated 20Mhz of BWA spectrum in 2.3Ghz frequency band by the government. Similarly, the company paid about Rs12,000 crore for 3G spectrum in 13 out of 22 telecom circles. 

However, in the 4G space, Bharti Airtel faces a very strong and cash rich competitor. Reliance Infotel, a unit of India's largest private company, Reliance Industries (RIL), is expected to roll out its 4G services by the end of 2012. Infotel Broadband, later bought over by RIL, was the only company to have won BWA in all 22 circles in the country. RIL paid Rs4,800 crore for a 95% stake in Infotel Broadband. 

In a statement, Bharti Airtel said, “Volume based browsing rate on 3G is down from 10 paise per 10kb to 3 paise per 10 Kb. This will be applicable for 3G non-pack users with effect from 17 May 2012.”  Airtel 3G pre-paid users can buy 3G high speed Internet service starting Rs45 for 150MB with for use within seven days to Rs1,500 for 10GB with a validity of 30 days.

Bharti Airtel is largest telecom operator in India and when it slashes tariffs for 3G services, other operators have no other option but to follow. What it will do to its profits and stock price, of course, is another matter.