Reliance Jio’s struggles with 4G speed may deepen data price war: CLSA
If Reliance Jio’s 4G speeds do not improve,it may extend free offers beyond December, says CLSA
New Delhi: Reliance Jio Infocomm Ltd is trailing well behind market leader Bharti Airtel Ltd after promising high speed 4G data across India. Jio’s current speed of 6 mbps is almost half of Airtel’s 4G speed of 11.47 mbps, which is likely to help Airtel retain its market share lead.
But the fall in Jio speeds could further hurt data pricing by older telcoms as the new entrant is likely to extend its free services period. “If Reliance Jio’s 4G speeds do not improve, the new entrant may extend “free offers” beyond December, adding risks to the data pricing of incumbents,” CLSA analysts said in a note on 2 November.
The Telecom Regulatory Authority of India (Trai) last month revealed that Reliance Jio’s 4G speed was the lowest among incumbents, while Bharti Airtel’s performance was the best in a data speed test. Reliance Jio’s network performance has dropped since its launch on 5 September and the speed has fallen drastically from 20-25 mbps at the beginning.
Reliance’s disappointing 4G speeds might have a favourable impact for Airtel which may be able to hold on to its market share. “We are positively surprised by the network outperformance of Bharti Airtel and maintain that it remains a key driver of market share gains. Among the four large operators, while Bharti Airtel and Idea Cellular have improved/maintained 4G speeds, Vodafone and Reliance Jio have seen a fall,” CLSA said.
The older telcoms have been continuously introducing data benefits and lucrative tariff plans to keep their subscriber bases intact and to counter Reliance Jio. This has hurt their revenue realization rates even as data consumption volumes have surged as seen in the latest quarterly results of Bharti Airtel and Idea Cellular.
To be sure, with the rapid expansion of 4G services, especially since 2015, Bharti Airtel now covers 19 of the 22 circles across India with high speed data services. Idea Cellular and Vodafone India offer 4G speeds at around 7 mbps, which is comparable with Reliance Jio.
Trai has ordered Reliance Jio to discontinue free services after 3 December, limiting its promotional welcome offer to 90 days.
The CLSA report noted that Reliance Jio’s free services are hampering quality as its speeds declined by 20% in September from 7.2 mbps to 6 mbps.
“With 17 of the 22 markets reporting the fall, a quick subscriber ramp-up led by “free offers” (high usage) impacted service quality in most markets. The fall in speeds is higher in data-heavy markets such as Delhi and Mumbai, likely due to higher penetration/usage of 4G services in these markets,” CLSA said.
Reliance Jio has 1.6 million customers on its network currently. Following Trai’s speed tests last month, Reliance Jio defended itself saying customers have to follow a fair usage policy which means that after 4GB data usage per day, the speeds would fall to 256 kbps and normal 4G speeds would be restored when the next 24 hour period begins.
“Historically, we have observed that a disproportionate number of speed tests are performed once the FUP comes into effect. This is so since most users don’t consider performing the test until they observe a deterioration of speed. Such users also tend to perform multiple tests until full speeds are restored,” Reliance Jio said in a statement on 20 October.
Trai’s speed tests are based on a sample data of around 2.5 million for 4G speeds and around half a million for 3G speeds.
CLSA noted that 4G, which is 2-3 times faster than 3G, continues to attract customers. The result of a test done on Trai’s Myspeed portal on Thursday showed similar results with Airtel maintaining a lead and Jio trailing behind.