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Airtel, Idea, Vodafone to shut down their 2G networks soon!

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In order to take on Reliance Jio, famous telecom giants have been grabbing headlines every now and then for launching their all new recharge plans back to back. Specifically talking, Airtel, Idea and Vodafone decided to switch off low Arpu (average realization per user) subscribers — those who spend less than Rs 35 a month — from their network, roughly 250 million 2G users stand to lose their mobile connection.

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Currently, while Bharti has about 100 million users who are below Rs 35 a month bracket, for Vodafone Idea the number is higher at around 150 million. While Bharti has come out with seven pan-India plan beginning at Rs 35, Vodafone has come out with five plans where also the lowest re-charge is Rs 35 a month.

“We have about 330 million customers in wireless, but if you look at the pattern of consumption across the base you will find that there is a very large number of customers, some of whom we acquired from Telenor and some that we have ourselves, about 100 million customers with very low levels of Arpu. So, these Arpus are sort of low double-digit,” Bharti Airtel CEO and managing director (India & South Asia) Gopal Vittal said.

While declining to share the number of subscribers they have in the low Arpu category, Vodafone Idea CEO Balesh Sharma said, “ It was a substantial number that were using it either only for incoming or had got Arpus below that of the average or that of unlimited customers. The Arpu of non-unlimited is about a fourth of the Arpu of the customers who take the unlimited plan.

Therefore, everybody who goes up the chain is an upside, even within the non-unlimited, because now he or she is paying a rupee in the Rs 35 a month package, so that is an upside versus those who were not paying us even a rupee, unless many of them choose instead to go to unlimited package which is also very good for us because then there is an Arpu that increases there.”

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The math behind the Rs 35 move is simple. Roughly, the Arpu the companies get from these users is Rs 10. If the minimum recharge each month remains the same, Bharti’s monthly revenue from them is Rs 100 crore. It hopes that if even half remain on the network and move to the new minimum Rs 35 a month plan, the revenue accruing from them will be Rs 175 crore a month.

These 250 million subscribers are dual SIM users, meaning that they have two mobile connections and use the lower recharge for only incoming calls.

The way the system worked before the introduction of minimum Rs 35 a month plan was that a top-up of Rs 10 if exhausted a subscriber could not make outgoing calls but would continue to receive incoming calls for as long as the plan was valid which could be maximum of six months.

By making Rs 35 recharge a month a must for staying on the network both Bharti and Vodafone Idea have calculated that either the user moves up the Arpu chain or move to the operator whose SIM he is using as a primary one.

The move will see improvement in Arpus for Bharti, which reported it at Rs 101 during the July-September quarter while for Vodafone Idea it was at Rs 88. Reliance Jio’s Arpu is higher at Rs 131 and that’s because its lowest plan comes for Rs 49 a month.

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Explains Vittal, “You could expect some shrinkage of our low-end customer base as we move to minimum Arpu plans, but dramatic growth of pre-paid on 4G and of course the post-paid segment. If you look forward a couple of years, we should see at the lower end 100 million customers giving us low-double digit Arpus compressed further by 30% to 40% and an Arpu upside there. And on the middle end almost all customers will start sort of moving to 4G.”

Another reason for the companies to switch of low paying 2G users is that the companies want to shut down their 2G networks and move the subscribers to 4G. For low paying subscribers the option for operators is either to compete with Jio’s Rs 500 4G feature phone which is a costly proposition or focus on high paying customers by moving them to 4G bundled plans which also improves their Arpus.

Bharti’s Vittal says, “We have chosen not to yet compete in the Volte feature phone space because we believe that there are customers already who are using our networks on feature phones. So our focus will be to actually get them to upgrade directly to smartphones”.

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