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Bundled Offers: Operators tie up with handset vendors to increase 4G uptake

November 23, 2015
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Faced with intense competition in the telecom market, telecom operators are adopting various strategies to attract customers. While lowering tariffs and introducing discount offers continue to be the key strategies to enhance the subscriber base, operators have also been partnering with handset manufacturers to offer bundled plans.

In a typical bundled offering, an operator partners with a handset manufacturer to provide a mobile phone along with a connection at a discounted rate. With operators firming up their plans to launch 4G services, the trend of bundled offers is expected to gain traction. The bundled schemes offered by operators until a few years ago mostly included free voice calling benefits. However, of late, operators are offering a variety of discounted data packs to their customers on the purchase of new handsets. This can be attributed to the fact that the share of data services in operators’ revenues is increasing owing to the growing popularity of internet-based applications. Data uptake will gain further momentum in the near future as the voice service market hits saturation.

Moreover, the large-scale roll-out of high speed 4G long term evolution (LTE) services is expected to further drive the demand for mobile data. According to a report by the Internet and Mobile Association of India and KPMG, the number of 4G subscribers will grow at a compound annual growth rate of 103 per cent from 2013 to 2018.

In order to leverage the potential of a burgeoning 4G market, operators have come out with a slew of schemes under which they are offering discounted 4G data packs along with new 4G-enabled handsets. This will help them not only expand their subscriber base but also to develop the overall ecosystem for 4G services in the country.

A look at some of the recently announced bundled offers and future strategies of select operators in the 4G space…

Bharti Airtel: Airtel launched India’s first commercial 4G services, in the Kolkata circle, in April 2012. As of August 2015, the operator has launched these services in 296 towns across the country. In order to increase the adoption of its 4G services, Airtel has partnered with handset manufacturers such as Samsung, Micromax, Motorola, Xiaomi, Lenovo, ZTE, Huawei, Asus, Lava and Microsoft to offer bundled data plans with the purchase of new 4G-enabled handsets. For instance, the operator is offering double the 4G data allocated under any existing plan selected by the consumer for six months on the purchase of phones such as Samsung Grand Prime 4G, Samsung Galaxy S6 edge+, Yu Yureka, Yu Yuphoria, Canvas Silver 5, Moto E (second gener-ation) 4G, Mi 4i, Redmi 2, Lenovo A 7000, ZTE Blade Qlux 4G, Huawei Honor 4X and Asus Zenfone 2 ZE551ML.

It has also partnered with Apple to sell the latter’s recently launched iPhone 6s and iPhone 6s Plus in India through the operator’s 235 retail stores. The operator has also introduced its iPhone Infinity post-paid plan wherein customers can avail of 60 GB of free 4G data over 12 months. This, according to the company, will help customers save Rs 15,000 in their monthly bills. Further, Airtel is planning to launch its own 4G-enabled handsets in the price range of Rs 4,000-Rs 12,000. To this end, the operator is in talks with China-based handset manufacturers like Foxconn. These handsets are likely to be bundled with attractive 4G data offers.

Airtel’s financial results for the quarter ended September 2015 highlight the fact that a large share of its revenues in the near future will come from the data segment. While the operator’s voice ARPU declined by 11 per cent, from Rs 158 in September 2014 to Rs 140 in September 2015, its data ARPU grew by 28 per cent from Rs 150 to Rs 193 during the same period. Therefore, bundled data offers are likely to remain a key strategy for the operator to increase data uptake, which in turn will drive revenues.

Reliance Jio Infocomm Limited (RJIL): RJIL has a pan-Indian spectrum licence in the 2300 MHz band and is expected to launch commercial 4G LTE services soon. However, before the launch of these services, the company is trying to flood the market with low-cost 4G handsets, which, according to RJIL, will boost the uptake of its services. To this end, the operator’s retail arm, Reliance Retail, has announced that it will launch the company’s own series of 4G LTE smartphones under the brand name LYF. These smartphones will include features like voice over LTE (VoLTE), voice over Wi-Fi, as well as HD voice and HD quality video calling.

Apart from Reliance Retail, the LYF brand of smartphones will be available through a wide distribution and retail network including multi-brand outlets. These smartphones are likely to be in the range of Rs 4,000 to Rs 25,000 and will be bundled with RJIL’s 4G plans. In addition, the operator may offer these phones with a zero down payment scheme under which the consumer will have to ensure a certain guaranteed amount of spending on a monthly or on an annual basis, a model similar to the one adopted by Reliance Communications in the past to sell the iPhone 5s and iPhone 5c smartphones.

In the past, RJIL had signed deals with handset manufacturers like Huawei, ZTE, Alcatel, CK-Telecom and K-Touch for the procurement of smartphones for the company’s consumer electronics brand, ReConnect, which will sell 4G handsets across India.

Idea Cellular: Idea Cellular is planning to launch its 4G services in 750 towns across 10 circles by mid-2016. It has also started working on bringing its own range of smartphones into the market. The operator is in talks with China-based TCL Communication, which operates under the Alcatel Onetouch brand, to procure 4G-ready smartphones. By offering its own branded 4G smartphones bundled with 4G data, Idea Cellular plans to attract data users to enhance its subscriber base in a bid to compete with rivals.

Vodafone India: The operator has announced that it will launch its 4G services in Mumbai, Delhi, Kolkata, Bengaluru and Kochi by end-2015. As of now, it has not announced any plans to partner with 4G handset manufacturers or to launch its own range of 4G smartphones. Meanwhile, like Bharti Airtel, Vodafone has also partnered with Apple to sell the iPhone 6s and iPhone 6s Plus smartphones in the country. However, it is offering 3G data discounted packs. Vodafone is giving its existing and new customers the chance to avail of the Vodafone “RED 1,299 worry-free plan” free of cost for six months from the time of purchase of an iPhone 6s or iPhone 6s Plus. The plan includes free 3 GB mobile data, 4,000 local and STD minutes, as well as 1,500 local and national SMSs.

Challenges and the way forward

By offering bundled schemes with handsets, telecom operators are increasing the scope of their core business, which was earlier limited to only providing services. While bundled offers help the operators increase their subscriber base and drive the uptake of data services, this comes with its own set of challenges. These include getting into complicated arrangements with handset manufacturers, committing to handset volumes and keeping stock of cash flow requirements. Moreover, given the low post-paid subscriber base, low credit card penetration and the difficulties involved in enforcing contracts in India, operators are finding it difficult to structure viable bundling schemes.

Nonetheless, bundled services do play an important role in increasing consumer loyalty. Once buyers opt for a bundled handset, they normally stay with the operator even after the termination of the mandatory loyalty period. Going forward, it is expected that bundling will gain momentum and co-exist with the unbundled sales model. In the next few years, 20-25 per cent of the smartphone sales are anticipated to take place through bundling schemes.

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