Users are unlikely to jump to 4G right away: Aircel's Sunil Kuttam

Practically every telecom player is eyeing 4G (fourth generation) services to improve their average revenue per user (Arpu), what's kept Aircel out of the fray?

Everything boils down to the timing of your entry in the market. Around 35% of our consumer are data users. It is one of the highest in the industry because of our schemes like sachet pack. Out of our total data users, 35% is on 3G data and 65% is still on 2G data. So, we have got a higher percentage of 2G data users and these are only increasing, not coming down. Aircel is a challenger brand. We get our consumers from competitors and pull in new users, who are currently non-telecom users. There are still a lot of 2G data users today. It's not only because it's (2G data) cheaper but also because many users are still not giving preference to speed over cost. Consumers are price sensitive and are willing to slightly forgo on experience if they can get price discount. So, as a brand we feel there is still a lot of juice in 3G data and 2G data, which we can leverage. Given that we are a challenger brand, we are trying to give more value in terms of pricing. We sell it at as low as Rs 98 per gigabyte (GB) of data compared with industry rate of Rs 250 per GB for 3G data and Rs175 per GB for 2G data.

Are you saying the timing for 4G is not right?

No way are we saying that 4G is not important but our focus would still be on filling the gaps in 2G and 3G, where we can play a larger role. We can't afford to achieve the scale needed in 4G to make it cheaper. We are still growing in these two bands. We have increased our 3G data penetration by 160% in the last one year and 2G is also growing at 20%, albeit on a higher base. From the investment perspective, we have already made investments and we now have to ensure that we get returns on them.

For us, 2G is the cash cow, where most of the investments is over. In 3G, we are still investing as we have to go to new areas and roll out our services. I still have 40% of my data-enabled handset base not using data. My first job is to convert these guys into data users by goading them to buy data packs.

Has the shift from 3G to 4G happened too fast?

3G has been here for six years now. The entire industry feels that we haven't leveraged it enough. If you take India, even with a population of 120 crore, the total number of 3G users are less than 13 crore. This is less than 11% of the population after six years. The latest reported number of 4G users is 7 million. These numbers are very small compared with the total number of data users of 60 crore in the country. So, we have 13 crore of 3G users and less one crore 4G users while a large number of data users are still on 2G. A lot of expansion in user base will happen in the rural areas. It is unlikely that users there will not jump to 4G right away. We don't expect 4G to become extremely big all of sudden. It going to take some time but it will definitely be faster than 3G.

Telecom players are following aggressively pricing model for 4G, how sustainable is it?

We have observed that the pricing for 4G is different. In 3G, the model implemented by the industry was that since 3G speed was faster, it was priced approximately 25% more than 2G. In the case of 4G, it's priced the same as 3G. It could be either a tactical move or a permanent one. The way telcos will make more money in 4G is through higher usage. As a 3G consumer you will use, on an average, 1GB a month. In 4G, you may end up using 4-5 GB because of its faster speed. So, even though your pricing for 4G is same as 3G, telcos' Arpu will be higher. Now, if a consumer, who is using 1GB on 3G and is used to paying 250 per month, suddenly gets a bill of Rs 1,000-1,250 per month after he moves to 4G, will feel the pinch. I am expecting 4G pricing to change over time. 4G is the cherry on top of a milk shake, 3G the ice-cream and 2G the entire milkshake at the bottom. Our strategy is that before investing too much money on the cherry let me first take out the entire milk shake. Airtel or Jio or Vodafone, they have a lot of consumers at the top-end who have a very higher arpu and are willing to pay more.

So, it makes sense for them. It does not make sense for us at this point in time to make a move to 4G.

When would look at foraying into 4G?

Timing is very important. We enter when the market for a service is already created otherwise you have to wait longer to realise your returns on investments. There are three things important for us to increase data revenue – first is network availability, second device availability and third the consumer's reaction to our network and devices. Earlier, we used to roll out and wait for the consumers to come. Today, the moment we roll out, we are able to maximise our revenues instantly because consumers with 3G devices are already there. All we do is roll out and start making money from day one. Competition, who rolled out five years ago, wouldn't have made returns on investment so fast because devices didn't exist then and consumers were not prepared. So, we let somebody else create the market for a service and then we go and reap the benefits. We do not want to spend too much for market creation. If I enter later I will not spend too much time on getting my returns on investments.

By doing this, aren't you risking your 3G users being converted to 4G users by other players in that space?

We have not felt anything like that till date. This threat is at the top end of the pyramid. However, the top-end users are our loyal users. Of course, we do get enquiries from consumers on when are we launching 4G but we have not seen them crossing over to the competition. One is the regular churn that happens and the other is our data growth. At the moment, we feel the data growth is happening, we will start feeling threatened when we are not seeing that. In 3G, we are still investing. If we had felt that it is not going to give us returns we would have stopped investing in it.