RJio 4G Plans Stoke Price-War Fears

A tariff war in India's data services market appears to be looming, with new entrant Reliance Jio promising to provide 4G services for monthly rates of just INR300-500 (US$4.70-7.80) when it launches in December this year.

Mukesh Ambani, the chairman of RJio parent Reliance Industries, also hopes to offer 4G devices for as little as INR4,000 ($62.73) per unit. (See RJio to Launch 4G in December.)

These pricing plans are certain to worry existing service providers like Bharti Airtel Ltd. (Mumbai: BHARTIARTL), Vodafone India and Idea Cellular Ltd. The proposals suggest RJio will be targeting a mass market and looking to attract mobile data customers from its longer-established rivals.

But not everyone everybody is convinced a tariff war is imminent. "Reliance Jio's announcements have only indicated the lower ranges for certain price points," says Deepak Kumar, the founder of analyst firm Businessandmarket.Net. "This, by no means, should be considered disruptive, especially as it is not yet clear what services would be available in the proposed price range. I think at this stage, the fear of a price war is a bit exaggerated."

RJio's pricing proposals also suggest it is on the lookout for new customers, who might never have ever used data services before. "Low-cost 4G LTE devices and services could actually help expand the market by lowering the entry barrier and bringing newer customer segments into the 4G fold," says Kumar.

The recent tariff hike
India's mobile operators have only recently been able to reclaim their pricing power, after the country's Supreme Court cancelled 122 licenses that had been issued by Andimuthu Raja, the previous telecom minister.

"Pricing power is back with telecom companies, who are focusing on profitable minutes and bytes, since the days when operators could give away concessional minutes and bytes are clearly gone," said Gurdeep Singh, the chief executive of Reliance Communications Ltd. , India's fourth-biggest mobile operator, during a recent earnings call with analysts.

The huge sums spent on new frequency licenses have also made tariff hikes imperative, and so it is little surprise that Bharti Airtel, Vodafone and Idea have all recently increased their fees.

RJio might struggle to change the game. For one thing, new rules require operators to provide more documentation when signing up customers than previously, making it harder for them to lure subscribers from their rivals. For another, regulatory moves now prevent operators from locking devices to SIMs, even though they can still bundle services and devices.

Moreover, rock-bottom prices might not be enough to persuade heavier-spending customers of other service providers to change operator. Consumers at this end of the market may feel that more basic smartphones lack the functionality they crave. Others may prefer to gauge the early response to RJio's launch before making a decision about moving to its network. RJio will also need to avoid any of the network issues that led to customer complaints during the initial rollout of 3G technology by existing mobile operators.

When Tata Teleservices Ltd. launched its "one paise per second" plan, competitors were forced to follow suit. But the entire industry suffered as profits dwindled. Investors will be hoping to avoid a repeat of that experience as 4G takes off.

— Gagandeep Kaur, contributing editor, special to Light Reading