Reliance Jio sends a message to rivals: It’s war

With audacious data plans, tariffs, low-cost Lyf phones, free voice calls for lifetime, Reliance Jio sparks fresh turbulence in the telecom sector


Reliance Industries chairman Mukesh Ambani. Bharti Airtel’s stock dropped 9% at one stage during Ambani’s AGM speech while Idea Cellular fell 7%. Photo: Pradeep Gaur/Mint
Reliance Industries chairman Mukesh Ambani. Bharti Airtel’s stock dropped 9% at one stage during Ambani’s AGM speech while Idea Cellular fell 7%. Photo: Pradeep Gaur/Mint

New Delhi/Mumbai: The gloves are off in India’s high-decibel war of the waves as Reliance Industries Ltd (RIL) chairman Mukesh Ambani used the company’s 42nd annual general meeting on Thursday to spell out aggressive plans for the long-delayed and much-awaited Jio 4G services.

With audacious tariffs, low-cost phones and free voice calls for a lifetime, Reliance Jio Infocomm Ltd looks set to kick off a new phase of turbulence in the world’s fastest growing telecom market, one in which video will be, as Mahindra group chairman Anand Mahindra tweeted, “the new voice”.

The ensuing battle will certainly see a realignment of the telecom sector with the weaker players succumbing to the massive spending power of Jio, whose scorched earth policy of spending its way to market leadership may not, however, thrill its existing shareholders.

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That market leader Bharti Airtel’s stock dropped 9% at one stage during Ambani’s AGM speech while Idea Cellular Ltd, another listed incumbent, fell 7%, points to how bruising this battle could turn out to be.

But for telecom users in India, particularly those that have been on the margins of data usage, inhibited by high rates and uneven services, this could be a bonanza, particularly once Bharti Airtel and Vodafone India Ltd unleash their own competitive data tariff plans.

Jio will price mobile phone data as low as Rs.50 per gigabyte (GB); just two days ago, Bharti Airtel slashed 4G and 3G mobile internet charges by up to 80% to as low as Rs.51 per GB under a special scheme in anticipation of the Reliance Jio launch.

“The Jio launch, if executed as promised, will disrupt the market, benefitting the consumers,” said Vishal Tripathi, research director at Gartner Inc.

Ambani, for whom this is his second coming to the telecom business, has promised the moon in an effort to win over the 100 million users he needs to justify his company’s Rs.1.5 trillion investment (till July 2016) in the business, its largest ever.

Rs.150 at the entry level is still above India’s voice ARPU (average revenue per user) but the flip side is that they have made voice free,” said Kunal Bajaj, a consultant for telecom, digital/Internet and tech ventures. “That is something that could create disruption because anyone who is spending over Rs.150 on voice and uses a little bit of data and is willing to upgrade to a 4G handset will do so. That is where the disruption will come in.”

Through the aggressive posturing, there was also a note of caution in Ambani’s speech to shareholders.

“Incumbent operators have advantages over new entrants, have well-established networks, customers. New entrants require fair access to both. Therefore, the onus is rightly on the incumbent operators not to misuse their market power by creating unfair hurdles”, he said, indicating that he is aware of the formidable fortress that Bharti Airtel, in particular, has in place, including enough spectrum for nationwide 4G coverage.

“We welcome Reliance Jio’s entry to the digital world and wish them the very best,” Airtel said in a statement. “As a responsible operator, we will fulfill all our regulatory obligations as we have always done,” it added.

“This changes the paradigm for the telecom industry. Having said that, all telecom operators have the same technology and are rolling it out. Pricing pressures will build up for telcos as they fight for market share but rules for customer experience will apply to all. Everybody has shareholder returns to take care of along with banks and debt, so this needs to be seen objectively,” said Hemant Joshi, partner at Deloitte Haskins and Sells.

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As a late mover in the business, Reliance Jio will need to woo existing customers from established entities such as Bharti Airtel, Vodafone India and Idea Cellular, while at the same time offering enough to the new converts to mobile data usage.

Thus, Reliance Jio’s 4G network, which spans 18,000 cities and towns and over 200,000 villages, expects to cover 90% of India’s population by March.

To this end, the company is creating an entire ecosystem with Jio which comes with its own device, a free SIM card, a data plan, its own media content, apps such as JioChat and JioPlay, besides expected integration with its retail businesses once it is launched.

Announcing a tariff plan which will reward data users for increased usage, Ambani said: “I believe that these are the absolute lowest data rates anywhere in the world”.

In an effort to target students, Jio will offer them 25% more data on plans and special services for enterprise customers by offering them “competitive and unique customized solutions”.

In a 29 August note, Citi research said that it expects data user penetration to rise to 46% by FY20 led by 4G, whose contribution to data revenue is set to increase manifold from 5% to 57% over this time period.

Cheap data is just one of RIL’s planks to take on current operators. The firm is also planning to sell smartphones as cheap as Rs.2,999 and WiFi routers for Rs.1,999. It has also promised improved service quality in areas such as booking a new connection.

Reliance Jio has played its early cards but Bharti Airtel, Vodafone and Idea aren’t expected to sit still. They have huge turfs to safeguard and the momentum of existing customers to back them. A no-holds barred battle for the Indian telecom customer is on the cards.

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As Tripathi of Gartner put it: “This is an alert call for competition who now need to be more aggressive. Clearly, what has been done till now is not enough (by telecom operators in terms of data tariff cuts). So now, all the telcos will be going to drawing board and charting out strategies to counter.”

The status quo telco business model is built around access with delivery being the key. With Reliance Jio trying to change that model by focusing on content and software an interesting clash is in the offing.

Shares of Bharti Airtel fell 6.4% to close at Rs.310.70, Idea Cellular ended at Rs.83.70, down 10.5%, and Reliance Communications Ltd fell 8.81% to Rs.49.15 on a day the benchmark Sensex edged down 0.1% to 28,423.48 points. Shares of RIL fell 2.73% to close at Rs.1,029.15.

Upasana Jain in New Delhi contributed to this story.

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