It’s Still Pre-Season in India

Indian Subscribers Continue to Resist Post-Paid Mobile Services


India’s mobile market is currently about 90 percent prepaid. Despite encouragement by operators to switch to post-paid accounts, subscribers are still in love with the prepay system. Until this changes, Indian operators will continue to be dominated by higher churn and accounts that generate less average revenue.

Even Airtel, currently India’s largest carrier, only has 16 million post-paid users; after Vodafone and Idea Cellular work their way through the regulatory hurdles toward a merger, they will have only 25 million subscribers with post-paid contracts. Even Reliance Jio, the white-hot upstart disrupting India’s telecom industry, has only about half a million post-paid accounts among the 120 million subscribers it’s accrued in less than a year.

What’s interesting is that during the past decade things have been trending in the opposite direction. As more individuals get connected, the ratio of post-paid accounts is being diluted. In this regard the market’s moving backward, denying networks the steadier revenue streams associated with post-paid accounts. In India, post-paid subscribers have a monthly average revenue per user (ARPU) of something approaching $8. This compares with less than $2 of ARPU for prepaid users. As a point of comparison, post-paid ARPU in the UK is about $32 and prepaid ARPU is about $7.

There are certainly income disparities in India, but this doesn’t tell the whole story. There are a total of 60 million post-paid accounts but a middle class of about 350 million individuals. For carriers, the law of averages comes into play here: they set up service pricing to attract a majority, and in doing so, establish behaviour for most of the country.

The prepaid system works smoothly in India and has done for over 15 years now, giving consumers the option to have connections with more than one operator and use the week or month’s best available tariff. It’s convenient to recharge prepaid accounts, often at a store using cash, which is still king in India. Operators have established networks of stores across the nation, and they account for about 95 percent of prepaid top-ups, with the rest completed through operator Web sites or through third-party sites such as FreeCharge.

But perhaps more importantly, prepaid tariffs give subscribers peace of mind by assuring them that they can only consume what they’ve paid for. For post-paid customers, it’s not unusual to get “bill shock” from exceeding call or data allowances. This includes roaming.

Roaming is still a problem in India, and to be clear, this means domestic roaming. At the beginning of this year several Indian operators announced free roaming within the country, but there was a big catch: it was for incoming calls only. Prepaid customers generally pay a higher tariff for the convenience of free roaming.

Post-paid customers usually pay roaming charges the moment they step out of their home “circle”, India’s 22 service areas which largely correspond to each administrative state. Moving from one state to another usually means roaming charges. For example a subscriber travelling from Karnataka, home to Bangalore, India’s high-tech hub, to Tamil Nadu, the next state over, would incur roaming charges. For slightly older subscribers in the US, the notion of such domestic roaming might ring a bell. For subscribers in Europe, this will touch a recent sore spot.

In India, mobile subscribers are still in the mood to be safe rather than sorry. Prepaid is the preferred mode for mobility and this is unlikely to change, given the current set-up.