Quality to matter more than price in 4G services: Experts

Unlike voice, data is more about quality and telecom companies will have to approach the game differently, feel telecom experts Sachin Gupta of Nomura and former Airtel CEO Sanjay Kapoor.Gupta and Kapoor were talking on the impact of Jio's impending commercial launch of 4G services on the incumbents in the telecom sector.Jio soft had launched its 4G offering to its employees earlier this week. "Data is not entirely about price cuts. If you look at the average customer in India, the biggest frustration most people have is that the quality is relatively poor," Gupta tells CNBC-TV18."With data, people are not that price conscious, they care for quality a lot more," he says adding that if Jio is able to provide quality services at a reasonable price, it will be a success. Gupta expects Jio to commence commercial operations in mid of 2016.Speaking in the same discussion, Kapoor feels that telecom players will hurt themselves if they try to play the price game in the 4G segment." I hope prices in these markets do not fall much below the levels they already are, because sustainability of the industry will become a question mark," Kapoor tells CNBC-TV18."There is no way you can have newer technologies and a great consumer experience with falling prices. Prices need to be held or raised so that quality of services can be sustained," he says."Data unlike voice is non-linear and requires a lot bigger effort around the eco system, be it devices, content or access," he says.According to Kapoor, Reliance has got its first act right on putting a lot of effort into getting its network right. But the challenge for telecom players across the globe is that getting a glitch-free network is a trial and error process and it could take at least two years to perfect it.Gupta is bearish on the telecom sector even without taking into account competition from Jio.That is because voice revenues have been stagnating over the last 2-3 years and the growth in data business has come at the cost of huge capex. In addition, buying spectrum in auctions every few years is adding to the debt burden of telecom companies, Gupta says.Below is the verbatim transcript of Sachin Gupta and Sanjay Kapoor's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: Have you done channel checks, how prepared is Rel Jio for the nationwide launch, should one expect it at the end of the first calendar quarter of 2016?Gupta: Most of us have done some sort of patchy channel checks but there hasn’t been a lot of details available apart from the presentation the companies have done. So they are targeting 80-100 percent coverage by next year. They might take one-two years extra but given the presentations they have made and the handset distribution they are talking about it is very likely that some sort of launch will happen by mid next year now.Sonia: The prices have not been disclosed yet and that is of interest to everybody but we understand that the low cost 4G devices could be as low as Rs 4,000 as well. How aggressive do you think this is compared to what the others have done as of now?Gupta: Rs 4,000 is not a bad starting point and if you look at the other 4G launches we had seen in China market and even the Indonesian market, you are getting the devices at USD 70-80 range and they do work on multiple frequencies. So I think it is very likely that Reliance Jio can come out with the devices that low but until we see the exact detail on the composition or the pricing plans, it is very difficult to be definitive on what the impact on the broader market could be.As we have seen, the company has talked about a lot of their 100 million sub target. The reality is if it is not Rs 4,000, let us say it is Rs 5,000 or Rs 6,000, even if they can get 50 million customers, that is quite an achievement and that can be quite disruptive for the existing guys.Latha: One finds it difficult to doubt the capacity of this group to do something disruptive especially because the way they entered and shook the telecom market in spite of being probably third or fourth in 2002 to launch, the ability to bring down call prices was so seminal. Do you think that it will be anything short of disruptive?Gupta: The voice was different. The data is not entirely about price cuts. If you look at the average customers in India, the biggest frustration most people have is the quality is relatively poor and it is not just India, a lot of the other emerging markets -- with data, people are not that price conscious, people do care about quality a lot more. If these guys can come out to the markets with decent services at affordable prices then they can definitely be successful.Sonia: So with so much competition on cards, how do you approach some of these stocks like Bharti Airtel and Idea because some of these telecom players are beset with problems of their own, Bharti Airtel, for example, with the Africa business etc but how do you approach these stocks now?Gupta: These stocks have corrected a fair bit and we have been bearish in the Indian telecom story for a long time and we don’t see any reason to change this until we get few more details on what Jio could do. Like I said, the problem is not just Jio -- if we take them out of the equation, the last two-three years haven’t been that great.Still the voice price increases are very rare. Data -- they are getting decent growth rates but for that the capex has gone up a lot and the other problems in India remains that the spectrum is limited and every few months, every few years, we are getting more and more spectrum auctions and a lot of these companies are heavily geared and there were US dollar debt as well and the currency hasn’t gone in the favour as well.Latha: You have a fair idea of how prepared the industry is for the 4G launch. What is your sense, is the 4G launch by Jio likely to be very disruptive, are we going to see a quality and a price challenge?Kapoor: I have no doubt in my mind that Jio has been preparing themselves to launch a quality network and the entire delay that has been created in their launch is because they are looking for a great consumer experience and they have been driving their teams internally, through grapevine that is what I pick up, to bring in a network quality which is absolutely going to give a much more superior customer experience compared to the incumbents.They are also a bit blessed I would say because incumbents have let it loose over the last two-three years like Sachin Gupta said. They have not invested enough into the networks to provide any great consumer experience and the consumer no matter, which technology they pick up services on has been struggling to get quality experience in the last two-three years.I think that hasn’t done any good to the incumbents because that has only enabled commoditisation of services whether it is the brand or it is the network and therefore probably Reliance has that softer launch pad where they don’t have very high benchmarks to beat. If they get their act together and they can bring in affordability, although my sincere wish is that I hope the prices on these markets do not fall much below the levels they are because sustainability of the industry will become a question mark.There is no way that you can have newer technology and a great consumer experience comes to the consumers with falling prices. I think the prices need to be either held or risen up overtime so that we can sustain quality services. We must understand unlike voice, data is non-linear and it requires a lot bigger effort around the eco system whether it is devices or it is content or it is access as compared to voice and therefore I do believe that Reliance on its first act of getting the network right have put in a great deal of effort.I think the challenge that they will have like everybody else has across the globe, networks are never set right at the first instance. It is a hit and trial activity everywhere in the world and it will take a couple of years before they can perfect it in every nook and corner. Also they have begun with 1,800 megahertz and 2.3 gigahertz, they need to hone in the 800 megahertz which is an indoor spectrum, which is going to give them an edge going forward onto the network and make sure carrier aggregation is there, devices support all the stuff.The second big challenge that anybody has in this market which is highly dominated by youngsters is how does your brand appealed to the youngsters. Now that appealing to the youngsters doesn’t happen overnight. It takes a consorted effort to make it happen. I think that is the true situation in the market. In the short run, I clearly see a lot of pressure on the incumbents, when it comes to market share and margins but in the longer run, I think this move will lead to consolidation.Sonia: Can you give us a final view on Bharti Airtel particularly because the voice revenues have been under intense pressure, we have seen five straight quarters of a decline in revenues in the quarter gone by, do you expect further pressure on financials for Bharti?Gupta: Bharti and Idea were very difficult stocks to analyse given this big overhang we are talking about in the near-term. Only question is in the near-term the domestic business haven’t done a bad job. If you look at the margin domestic, it has been going up six-seven quarters right now but the problem is when you are buying Bharti, you are not just buying the domestic business, you are buying the African business as well and that has chronically underperformed since both the business are back in 2010 and even with the spectrum a lot of these companies have the spectrum amortisation is quite a complicated exercise. Earnings growth will be there but there is scope for disappointment regardless of what Jio does given some of these overhangs.Disclaimer: Reliance Industries, which owns Reliance Jio, is also the owner of Network18 Media and Investments, of which moneycontrol.com is a part.