[In recent years, the use of smartphones, which can be bought for as little as $20, has ballooned, and Indians have rushed to digital services like Google and Facebook. India is already Facebook’s largest market, based on number of users. Local start-ups like Flipkart, a growing e-commerce player, have taken on the likes of Amazon.]
By Mark Scott
Billboards in Kolkata, India, in 2014. In recent years, the use of smartphones
in the country has ballooned. Credit Rupak De Chowdhuri/Reuters
India is fast becoming the new battleground for global technology and telecommunications giants, as Facebook, Vodafone and others vie to connect the country’s population of 1.2 billion to the internet.
The fight took another turn on Monday when Vodafone, a British carrier, announced that it was combining its Indian unit with Idea Cellular, a local operator, in a $23 billion deal that would create one of the world’s largest cellphone providers, with roughly 400 million subscribers in India.
The country’s cellphone industry is undergoing a drastic overhaul, as more Indians make the digital leap.
In recent years, the use of smartphones, which can be bought for as little as $20, has ballooned, and Indians have rushed to digital services like Google and Facebook. India is already Facebook’s largest market, based on number of users. Local start-ups like Flipkart, a growing e-commerce player, have taken on the likes of Amazon.
The explosion of internet usage has created cutthroat competition among carriers seeking ever faster mobile networks and cheaper data packages in a country where consumers are particularly sensitive to price. And the dynamic has prompted a flurry of investments and deals.
Reliance Industries, an Indian oil conglomerate, is plowing billions of dollars into a new cellphone operation called Jio that offers free data and voice plans. In a bid to compete, Bharti Airtel agreed last month to buy the Indian assets of Telenor, a Norwegian operator.
“Consolidation in the Indian market is the name of the game,” said Rishi Tejpal, an analyst in Gurgaon, India, for Gartner, a technology research company. “The survival of 10 to 12 local operators isn’t a long-term reality.”
Under the terms of the deal announced on Monday, Vodafone and Idea would merge their operations in India to create the country’s largest carrier, with roughly 35 percent of the market, based on subscriber figures.
The companies said that the merger would allow them to invest heavily in faster mobile networks across India. Those networks, called fourth generation, or 4G, are a basic requirement for movie streaming and watching TV programs on smartphones.
While many in India already have so-called feature phones — rudimentary devices with limited, or no, access to the web — operators are trying to coax people to invest in budget smartphones that can take advantage of mobile data. Such services offer higher returns than carriers’ traditional voice or text message offerings.
“We have responded effectively to the newcomer,” Vittorio Colao, Vodafone’s chief executive, said on Monday, referring to Reliance Industries and its free offerings. “Anyone who gives anything away for free in life has to charge, inevitably.”
The merger is expected to close by late 2018. Vodafone would retain a 45 percent stake in the business, while the Aditya Birla Group, Idea’s majority shareholder, would hold a 26 percent stake. Idea’s other shareholders would own the remaining stock.
The promise of India’s large market has caught the attention of some of Silicon Valley’s largest companies, too.
Facebook tried to break into the country’s telecom market by offering some internet services, based around its social network and messaging apps, free through a partnership with a local carrier. But last year, the Indian government blocked that deal, saying that Facebook’s free services broke the country’s so-called net neutrality rules, legislation that stops certain internet traffic being treated differently than other data.
Analysts say the main instigator for the latest merger was the entrance of Jio last year. Jio quickly drew about 100 million subscribers, thanks largely to its free voice and data packages for new users.
Reliance has invested at least $25 billion to build a fast mobile network across India, and that has forced rivals to cut their prices and to spend big to try to keep pace. Reliance plans to pare back its free offerings by the end of March. Instead, it will encourage users to buy low-cost monthly data plans, in which voice calls are expected to remain free of charge.
For Indians, the price war has led to a flurry of mobile data offers, allowing many to connect to the internet at significantly discounted rates. That has allowed subscribers to use digital services, such as those from Google and Uber, that would previously have been prohibitively expensive.
“The Indian market is very price-sensitive,” said Mr. Tejpal of Gartner. “There’s no doubt that Reliance entering the market helped to increase internet penetration across the country.”
Follow Mark Scott on Twitter @markscott82.