RJio 4G Launch Could Make Rivals Lose Their Voice

Indian new entrant Reliance Jio has taken the wraps off the pricing plans for its much-awaited 4G services, and they do not look good for its rivals.

For the first time in the history of India's telecom market, a company will be offering free voice calls to all of its subscribers. Nor will Reliance Jio subscribers have to pay any roaming charges.

Mobile data, meanwhile, will cost from as little as 50 Indian rupees ($0.75) per gigabyte -- that is, following the availability of unlimited free data access until December 31.

"Today, RJio's 4G network already covers 18,000 cities and towns, and over two lakh [200,000] villages. By March 2017, we will cover 90% of India's population. RJio is the only mobile network in the country that is only 4G LTE. This means that there is only 4G on the Jio network and not 'mostly 2G, sometimes 3G and once-in-a-while 4G,'" said Mukesh Ambani, the owner of RJio parent company Reliance Industries Ltd. (RIL) , during a recent speech.

This offer is similar to the "Monsoon Hungama" promotion that Ambani launched 13 years ago during his first telecom outing with Reliance Infocomm (now Reliance Communications, and owned by brother Anil). Launched in 2002, Monsoon Hungama reduced calling rates from INR2 ($0.03) to just INR0.40 per minute, forcing competitors to offer services at rock-bottom prices. Today, India boasts the lowest average revenue per user in the world. And Ambani is up to his old tricks once again.

But, as operators will appreciate, low tariffs do not always lead to long-term gains for the companies behind them. Tata Teleservices Ltd. began marketing a "one paisa per second" tariff on its launch of GSM services, forcing other telcos to unveil similar offers. Yet while Tata gained a number of new subscribers, its move is now blamed for driving the industry into debt.

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Contemplating RJio's free-voice promotion, operators including Bharti Airtel Ltd. (Mumbai: BHARTIARTL), Vodafone India and Idea Cellular Ltd. may feel their worst nightmares have come true. While the revenue contribution made by data services has grown in the last few years, the big players still generate nearly 80% of their revenues from voice services. Ambani's move could trigger mass customer defections, as consumers take advantage of RJio's largesse. Already, high spectrum prices coupled with intense competition have had a nasty impact on profitability. But RJio's offer could make the situation much worse. It could even affect the outcome of India's forthcoming spectrum auction, according to analysts at Ernst & Young International .

"The telecoms sector is currently reeling under financial stress, high debt burden and slowdown in revenue growth," says Prashant Singhal, the global telecom leader for Ernst & Young. "Further decline in data tariffs may impact operators' profitability and sustainability. Telcos form the backbone of 'Digital India' and they need to make higher investments in data networks. Any market erosion, at this stage, may impact the outcome of the upcoming INR800 billion [$12 billion] spectrum auction critical for the Digital India vision."

But there is another side to the story. Ambani's move should expand the size of the broadband market for all India's players, encouraging more consumers to make use of data services. "For a price-sensitive market like India, the launch of affordable data services and free voice calls is indeed a welcome step," says Singhal. "This is expected to drive greater data adoption across segments."

RJio has already invested INR1.34 trillion ($20bn) over the last five years in setting up its venture. It is safe to say that profits may be some time coming. And for the incumbents, the battle to defend their turf has just begun.

— Gagandeep Kaur, contributing editor, special to Light Reading

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