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Lockdown deepens woes of India’s mobile operators

India’s lockdown has forced mobile phone operators to subsidise hundreds of millions of low-income users, adding to the financial burden on the already strained sector.

After the country announced a nationwide shutdown late last month to stem the spread of coronavirus, the shops where many users typically recharged their pay-as-you-go plans closed. At the same time the suspension of all but essential services left many low-income Indians without work and unable to afford top-ups.

As a result, private operators Vodafone Idea, Airtel and Reliance Jio have been offering subsidies and freebies to keep their most precarious users, including migrant labourers and daily wage workers who often use older generation, non-smartphones, on board until this week, when the lockdown was originally due to end. Prime Minister Narendra Modi on Tuesday extended the lockdown until May 3.

Speaking before Mr Modi’s announcement, Rajan Mathews, director-general of the Cellular Operators Association of India, said the measures risk becoming a longer term drag on the sector’s growth and finances.

“If Covid-19 continues to result in quarantines, new activations won’t happen,” he said. “Similarly the question becomes, if people are quarantined [and can’t top up their plans], then we get forced into giving freebies . . . If it continues, the landscape is a bit murky.”

Vodafone Idea, the UK operator’s India venture, has said it would allow its 100m non-smartphone phone users — about a third of its subscriber base — to continue receiving incoming calls even if plans expired, and give them credit for calls. Airtel said it would offer similar services for 80m of its own roughly 300m users.

Rival Jio said it would give all its 370m 4G-only users 100 minutes of free calls and 100 free text messages.

India has experienced an explosion in mobile uptake in recent years as hundreds of millions of people started using phones and mobile internet for the first time. That trend accelerated after Jio launched in 2016.

But Jio’s arrival also sparked a price war that eroded industry revenues to unsustainably low levels. Vodafone Idea and Airtel are also on the hook for billions of dollars in historic payments to the government in an unresolved dispute.

The three operators were anticipating a reprieve after announcing late last year that they would start raising prices. But the economic damage caused by the coronavirus pandemic, which Capital Economics expects to push India’s GDP growth this year as low as 1 percent, risks making those future hikes harder to pull off without hurting demand.

“Obviously now increasing prices will be very difficult,” said Abhimanyu Sofat, head of research at brokerage IIFL Securities. Mr Sofat revised down his estimates of earnings before interest, tax, depreciation and amortisation for Airtel and Jio by about 10 percent for this year, and by 7 percent for Vodafone Idea.

One silver lining, Mr Mathews said, was an expected boost to revenues in March and April as homebound Indians used large amounts of data to work remotely or stream video. “That’s the lining around these dark clouds,” he said.

But the economic damage from coronavirus could threaten the ability of the low-income Indians — the drivers of the sector’s growth — to continue spending on mobile devices, particularly smartphones, he noted.

“In that bottom of the pyramid situation, if employment doesn’t pick up on any sustainable basis, people are not going to invest money” in phones, Mr Mathews said. “They’re going to do their best to eke out that daily living.”

―Financial Times

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