Mukesh Ambani's Reliance Jio to start commercial launch from April; industry heaves a sigh of relief

New Delhi: Reliance Jio Infocomm has been a disrupter in India’s telecom market since its arrival last September, promising free voice calls for life and offering data services for free for months. Today, as Chairman Mukesh Ambani announced plans of RJio’s commercial launch from 1 April, a cheer went out in the telecom industry. The biggest industry fear – that RJio will further extend its freebies and thus worsen the already precarious financial condition of incumbent telcos – was put to rest. Remember, RJIo’s tariffs have caused incumbent telecom operators to lose revenue as well as profitability as they have been forced to compete on data pricing while also being compelled to connect increasing number of calls emanating from the RJio network.

In fact, it is the arrival of RJio and its disruptive techniques that has pushed India’s telecom industry, for the first time in its history, towards a revenue loss position. Analysts say the industry could see between 3-5 percent revenue loss this fiscal as heightened competition and falling ARPUs (Average Revenue Per User) will hurt players badly. To a large extent, this is a consequence of the arrival of a new entrant in an already crowded market.

Two analysts of brokerage Motilal Oswal, Aliasgar Shakir and Jay Gandhi, said in a note to clients earlier this month that revenue and financial KPIs (key performance indicators) of India’s telecom market have sharply declined, thanks to the arrival of a new operator and the wireless industry is expected to see a decline of 3-5 percent in the current fiscal. "This will be for the first time and the market condition will only improve once the new operator starts charging operator has severely impacted the market," they said.

Mukesh Ambani, CMD, Reliance Industries

Mukesh Ambani, CMD, Reliance Industries

No wonder then that firm plans to begin charging for its services by RJio Chairman today brought cheer to the industry. Ambani said in his address this afternoon “RJio’s extremely popular ‘Happy New Year Offer’ is approaching its end on 31 March of this year. Starting 1 April, RJio will start offering its tariff plans. On all of RJio’s tariff plans, all domestic voice calls to any network will always remain free. Across India, to any network, always. And no roaming charges, no blackout days and no hidden charges.” He said RJIo acquired 100 million customers within 170 days.

And also that this existing 100 million customer base besides those who come on board by 31 March can use RJio services for another year at a nominal charge of Rs 303 per month. This has pleased analysts, who point out that this price is higher than the average industry ARPU and therefore won’t be dilutive of earnings of other telcos.

Sachin Salgaonkar of Merrill Lynch said in a quick note to clients, minutes after the announcement was over, that this is positive for the industry. “If RJio starts charging Rs 303 per month then we consider it to be positive for the industry as the offers may not be dilutive for Bharti/Idea as their average ARPU (average revenue per user) is below Rs 200. This may lead to some traffic moving back from RJio to top telcos. We are not overly worried on RJio's ability to offer 20 percent discount on existing tariffs as top telcos may have many offers which they do not even publicize and may offer customer-made packages to many.”

Salgaonkar also said that the top 3 telcos – which means Bharti, Vodafone and Idea - will continue to invest in building capacity to compete with RJio.

The arrival of RJio has already made the going tough for the big three. Vodafone and Idea are already in merger talks to form an entity which will overtake current market leader Bharti. If the merger does fructify, the new entity may have close to 42 percent revenue market share and a 36 percent subscriber market share. This means close to half the industry revenues and a third of its subscribers. Then, news reports suggest the entity formed after RComm and MTS get regulatory approval to merge, may expand further and include Tata Tele to form yet another big telco. RJio’s arrival has spurred the fragmented telecom industry to go in for mega consolidation and so its commercial launch is good news any way one looks at it. For the future prospects of this industry, which is the world’s second largest behind China.

Look at the market dynamics pre-RJio. In September last year, Bharti had only a third of the share of revenues while in terms of subscribers, its market share was lower at less than a fourth. And this was the number one operator in the market. Put simply, this means the largest player in the Indian wireless telecom market did not have three in four subscribers and earned only a third of the industry revenues. Now let us look at the number two and three players. Vodafone had less than a fourth of the revenue pie and just about 19 percent of a fifth of the total subscribers. Idea fared worse, obviously, with 18.7 percent revenue share and 16.7 percent share of subscribers. This clearly goes on to show how fragmented the market already was when RJio entered. And its generous plans further fragmented the market, thus hurting incumbents.

A look at the financial situation of incumbent telcos. Vodafone Plc, the British parent, has had to write down close to five-and-a-half billion dollars for the India operations recently. It has been talking of a listing on Indian bourses with little success and has never been profitable here. In the December quarter of FY17, market leader Bharti suffered due to increased competitive intensity. Third quarter net profit slumped 55 per cent from a year earlier as its voice and data businesses felt the full impact of RJio’s free services. Revenue fell 3 per cent as data and voice rates fell and more subscribers left the operator. Idea also reported a significant dent in its earnings thanks to RJIo’s arrival, reporting its first quarterly loss since getting listed. Its net loss was Rs 384 crore versus net profit of Rs 660 crore in the year-ago period. Revenue declined 3.7% to Rs 8,661 crore.

Perhaps with pricing back in the market in the new fiscal, every telecom company will find the going a little less traumatic.

(Disclosure: Reliance Jio is owned by Reliance Industries, who also own Network18, the publisher of Firstpost)

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Updated Date: Feb 21, 2017 17:12:50 IST

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