India's 2G customers may not upgrade to 4G

Existing 2G customers don't want to move to smartphones because of the high prices of devices and preference for featurephones, executives said. For users from the lowest economic strata, tariffs would be high even though they're among the lowest in the world in India.

“There's about 150-200 million existing 2G customers, of which about 50-100 million may be nudged to move to 4G, but there will be a large customer base that not going to shift to 4G, and that is true not just on our network but on any other network as well," said a senior executive at Reliance Jio, India’s largest telecom services provider that was betting on making India 2G-free. The carrier offers ₹1,000 JioBharat phones to first attract such users, and then move them up to 4G.

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“There are customers who cannot move to ₹1,000 device, because for them it is unaffordable," said the executive, asking not to be named. “Unless the telcos themselves decide to shut down 2G or the government mandates it, 2G networks in India will continue to go on."

While Reliance Jio does not have 2G customers on its network since it only provides 4G and 5G services, it has pitched using the ₹75,000-crore Universal Services Obligation Fund--created to ensure connectivity reaches all under-connected areas of India--by subsidizing smartphones for featurephone users.

Vodafone Idea, which has about 86 million 2G users making up 40% of its user base, said it will nudge its customers to move to 4G but will not abandon them or allow them to be poached by competition. Vi’s chief marketing officer Avneesh Khosla told Mint that tariff increases had been accepted by consumers but high prices of entry-level 4G smartphones, which have risen significantly over the past couple of years, continued to pose a challenge.

“Even OEMs (original equipment makers) have started to vacate that price point, because everyone wants to move up the value chain. There will be a proportion of customers that will continue to be on 2G devices, and we continue to persuade them but if they want to be served with a 2G device and a 2G network, are we going to walk away from that? The answer is, no," said Khosla.

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Vi will shut down its 3G services by March next year, making it the last player to close 3G services and have only 2G, 4G and 5G networks in the country.

Bharti Airtel, India’s second largest operator which has about 90 million 2G customers, has also said that it will not shut down its 2G network as it continues to serve customers at the lower end and does not need to spend on this as it does not require additional spectrum.

2G customers are typically low average revenue per user users who do not have access to high-speed internet that 4G or 5G offers.

“Lack of affordable entry-level smartphones, higher cost associated with 4G plans, and limited 4G network coverage in remote areas are key reasons for 2G users not migrating to 4G," said Shilpi Jain, senior analyst at Counterpoint Research. India still has a significant featurephone user base for 2G network and a section of users keeps featurephones as its secondary device, she said.

Many senior citizens prefer a simple featurephone over a smartphone which ensures continuity of 2G networks in India. Also, since there is still a significant gap between the price of featurephones and entry-level smartphones, the migration has slowed down in recent years, she said. The price of entry-level 4G devices begins from ₹6,000, while 5G handsets start from ₹9,500 onwards.

Faizal Kawoosa, founder of research firm TechArc, however, expects 2G users to completely drop out of privately owned networks if tariff hikes continue.

“With telcos consistently working on improving ARPU, essentially by increasing tariffs, they want to eventually phase out from this high volume-low value tier of subscribers. Perhaps this is why they are working on a plan to let such subscribers go and make up the money from paying base and gradually keep increasing tariff to compensate," Kawoosa said. “Eventually, we might just be left with the state carrier BSNL with a 2G network where all such subscribers will latch on to."

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BSNL has been adding customers at the cost of rivals. As of August, BSNL gained 2.5 million consumers, taking its total to 91 million, according to the data released by the Telecom Regulatory Authority of India on Friday. However, Jio lost 4 million, while 2.4 million dropped off Airtel and 1.8 million subscribers left Vi.