Vodafone-Idea and Airtel are missing the point. The game is not ARPU, but an entirely different business model
It’s that time of the year again when companies report their Q4 and annual results. Upon taking a look at the results of Vodafone-Idea and Airtel, we can see that the former lost about 53.2 million subscribers in Q4 and 35.1 million in Q3. This is due to the company choosing to drop low-value customers while increasing their focus on higher spending ones. In the process, the company also managed to increase its revenues marginally by 2.3% on a daily average basis. A similar story unfolded at Airtel as well which managed to grow daily revenue by 6.7% in the year as they, too, weeded out low-value customers. However, this growth in revenue is unlikely to be the path to long term profitability as more and more customers choose to switch to greener pastures like Jio.
When Jio launched in India in 2016, it did not just upend the unit economics of the telecom sector in the country, but it changed the business model itself. While the competition scrambled to cut their flab and match their challenger’s pricing, Jio, itself started to treat its customers as a community. This is a key reason why, even three years after its arrival, consolidation in the sector to essentially three operators, and innumerable new offers later, Airtel and Vodafone-Idea continue to bleed. The companies have resorted to offloading low-value customers from their network, raising their ARPU, but not really moving the needle much by way of cost-cutting apart from the expected synergies of the Vodafone-Idea merger.
Meanwhile, as the two remaining incumbents zigged, Jio zagged. They changed their business model entirely. When they launched offering a free service for the first few months, critics said that as soon as Jio starts charging for their offering, customers will flee in droves. That didn’t happen. Then they said that the content pipeline Jio built across Live TV and On Demand Content would only go so far. However, the company has augmented their pipeline over the years, signing deals with BCCI and Star for seamless integration of cricket viewing within their apps, a deal with Disney which would give their customers access to their library of content from Mickey Mouse to Star Wars. This has propelled the service to over 300 million customers, overtaking Airtel as the firm number 2 in the market, with only the merged Vodafone-Idea ahead of them. This even as the market leader lost 88 million customers over the last two quarters.
The new business model followed by Jio relies on a network + system. By focusing on building a robust network with fast speeds and affordable data, the bet is that a faster and more economical internet will unlock entrepreneurial potential by making more market segments reachable through the internet. This entrepreneurial potential is likely to be the rising tide that lifts all boats, driving consumption, value, business sense for both new companies and the network they rely on. In the food-tech sector, for example, Zomato and Swiggy have expanded to smaller towns, seeing better unit economics in those locations than in the big metros. The arrival of the two delivery platforms has led to the opening of more “cloud kitchens”, resulting in more choice for customers. This added choice leads to more frequent orders. And the network used by the delivery executives, the customers, and the restaurants — most likely Jio.
Sure, the company is also looking to tap into some of this entrepreneurial potential themselves. Beyond content services, the company has announced plans to create an unparalleled omnichannel retail experience which will leverage the might and scale of Kirana stores. They also have their JioPay payment service in association with SBI which is yet to reach its full potential. Then again, there is their super app to tie in all these services and put them front and centre ahead of 300 million pairs of eyeballs.
Yet, Airtel and Vodafone-Idea continue to focus on extracting even more from high-value customers as the loyalty of those on Jio gets reinforced with added benefits, they didn’t think they needed. A new business model indeed.
