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Vandana
Vandana

TELECOM

Reliance Jio set to disrupt India's telecom market

INDIA-ECONOMY-TELECOMMUNICATION Customers wait to purchase Reliance Jio Infocomm 4G mobile service SIM cards at a store in Mumbai | AFP

This used to happen on Flipkart’s Big Billion day sale—you click on a product and damn! It's out of stock. Flipkart’s annual sale event draws enormous customer interest. The customer frenzy for Reliance Jio is somewhat similar or even more, thinks Shrikanta Das, assistant manager, marketing at an FMCG company and a tech enthusiast.

Das stood in a queue for three hours outside a Reliance Digital Express outlet only to discover that SIMs were out of stock. “There is a big waiting list and I have been told that I can get a SIM card only by 15th October,” he says. Das hasn’t lost the spirit though; he has a dual SIM phone and wants to use Jio specifically for data.

The richest man in the country has proved his might once again by creating euphoria for his newest business, enticing customers with freebies. Mukesh Ambani understands the fact that the Indian customer is very price sensitive and the only way to win them is by offering more for less-a trait that he learnt from his father Dhirubhai Ambani.

“Reliance Jio is turning out to be a game changer. The existing operators were already expecting it and therefore had started focusing on 4G before Jio’s launch. But Jio’s pricing is such that it is bound to create a disruption in the market”, says Salil Garg, Director (Corporate) at India ratings & research.

“Mukesh Ambani’s one hour speech at RIL’s AGM wiped off Rs 13,000 crore from listed players’ market cap. Its disruptive pricing will impact topline and bottom line of existing telcos. Their margins will be under pressure”, says Garg.

Experts believe that growth in the voice segment in telecom industry has saturated and future growth will come from data. The data penetration in India is still quite low and that is what Reliance Jio is planning to cash on.

Its 4G LTE service will offer not only high speed data but also better quality of voice calls. The existing operators’ network has been built for voice and is now being upgraded to offer data. On the contrary, Reliance Jio’s network is built for data which will also offer high quality voice calling services.

“One of the advantages with Reliance is that their technology is more modern and upgraded than existing companies in the sector. These companies do not have a consistent 4G network”, says Garg.

Reliance Jio’s competitive pricing strategy is expected to impact the incumbents—Bharti Airtel, Vodafone and Idea which might see their profitability and margins going down in the near term. They will have to make investments in network, infrastructure, spectrum to compete with Reliance Jio’s promised service quality. They will also have to bring down data prices (including that of voice) to restrain customers from moving to Jio.

Their average revenue per user (ARPU) might come down in the short term. Some experts believe that Jio’s Rs 149 tariff plan will have maximum impact on incumbents’ voice business. Under this offer, Jio is giving free voice calls and 0.3 GB of data. So, customers who end up spending about Rs 150 every month just on voice calls will be the first ones to make the switch. Almost 75 per cent of telcos’ revenues comes from voice.

“There is a high probability that voice rates will also come down. Some of the operators might also offer bundled data and voice plans. Airtel and Vodafone have already started offering unlimited voice calls on high value post-paid packs to retain higher revenue paying customers,” said an expert who did not want to be identified.

At Reliance Industries AGM, Ambani said that Jio is targeting 100 million customers in the shortest possible time. With mobile number portability in place, significant customer migration is expected in the next few months.

“The incumbent telecom operators would have to recalibrate their strategies to make sure that nobody shifts to competition purely because of price and that would be a major challenge”, says S.P. Purwar, head of telecom practice at JSA law and a telecom veteran.

While Reliance Jio’s tariff plan starts at Rs 149 at the smallest level, experts say that the trick is to make people switch to a higher plan once they get used to accessing high quality data services. The basic plan offers only 0.3 GB—a small amount for regular data users. The next level—Rs 499—is where Jio would like most of its subscriber base to be.

INDIA-ECONOMY-TELECOMMUNICATION A staff member arranges Reliance Jio Infocomm 4G mobile service SIM cards at a store in Mumbai | AFP

Even as Ambani has unleashed a pricing blitzkrieg in telecom, it will not be so easy for him to snatch position from established players. They have already built a strong base and Jio will take time to make its presence felt. There is also an entry barrier to Jio’s technology as one needs 4G LTE enabled handsets to use Jio’s SIM cards.

Currently, the number of such handsets is very small. Only 6-7 per cent of the subscriber base have 4G enabled handsets. With people changing handsets quite frequently these days and Reliance offering its own Lyf mobiles, the number should go up very soon.

Jio’s entry will give a further boost to consolidation in the industry. Weaker players will find it difficult to survive and hence will either merge or get acquired. Aircel is reportedly looking to merge with RCom. Videocon sold its spectrum to Bharti Airtel, thus exiting the sector. Industry insiders believe that RCom will eventually merge with Reliance Jio.

Reliance has started the game by offering freebies to lure customers. They might continue this beyond 2018, given the parent company’s financial muscle. Amidst all these, Reliance Industries’ stock will be under close watch by brokerages and analysts for investments entailed on the new venture and expected realisations.

“How much and when will Reliance benefit from its telecom venture remains to be seen because Reliance is also incurring a huge cost on challenging the incumbents”, says Mahesh Uppal, director at Comfirst, a telecom consultancy firm.

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Topics : #Reliance Jio

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