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Business News/ Industry / Telecom/  Reliance Jio’s boost for data usage will benefit all operators
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Reliance Jio’s boost for data usage will benefit all operators

For investors the key question is whether consumers acquired by Reliance Jio through free service offers will stay once it starts charging for the services

Analysts have predicted that massive investments in Jio will eventually have an impact on RIL’s bottomline and margins but there is no stopping for Jio. Photo: Indranil Bhoumik/MintPremium
Analysts have predicted that massive investments in Jio will eventually have an impact on RIL’s bottomline and margins but there is no stopping for Jio. Photo: Indranil Bhoumik/Mint

New Delhi: Very few operators globally have invested so much in so short a period of time as Mukesh Ambani-promoted Reliance Industries Ltd (RIL) has in its Jio venture. Just four months into operations, and the company has already ploughed Rs2 trillion to kickstart its telecom business in the world’s fastest-growing market for these services.

Despite the massive investment, there is little guarantee of the outcome.

Analysts have predicted that massive investments in Jio will eventually have an impact on RIL’s bottomline and margins but there is no stopping for Jio. Last week, it committed another Rs30,000 crore through a rights issue for the nascent telecom business. A majority of the new investments will go towards “unprecedented customer response to Jio’s services as well as to address the anticipated growth in demand for digital services" and “into the network to enhance its coverage and capacity".

In the four months since Jio’s launch, it has built a formidable base of around 75 million subscribers—around a quarter of Airtel’s base. A large share of these customers may have come to Jio thanks to the free welcome offer period, which has now been extended to 31 March 2017, in the process raising a lot of eyebrows. In fact Airtel rushed to the Telecom Disputes Settlement and Appellate Tribunal (TDSAT), accusing sector regulator Trai of being a “mute spectator" even as Jio is trying to “wipe out" the competition.

Airtel’s concerns are justified. It has dominated the telecom market for nearly two decades and the Jio threat is the first major assault on its hitherto impregnable market position.

In the meantime for investors the key question is whether consumers acquired by Jio through free service offers will stay once it starts charging for the services. If they don’t it would be a major setback for Jio.

What could be a big plus for all the operators is if Jio manages to change the consumer behaviour in the country and nudge users into consuming more data. Such a situation will be ideal for the debt-laden telcos who now do not need to invest in spectrum acquisition since most of them have a very good spread. Additional investments in improving their operational efficiency though won’t do any harm.

If Airtel’s September quarter results were anything to go by, the market leader’s data consumption grew by 50% but at a price decline of 20%, which means Indians are already data-hungry and all they needed was just a trigger, which Jio provided in terms of its aggressive pricing. Low data pricing will always spur consumption but that may not necessarily happen at the expense of existing customers. Newer customers will have to be added. Non-data users will have to be compelled to use data (another reason why Jio will offer VoLTE services on feature phones). But, that should not be an uphill task if data rates come down quickly.

For sure, average revenue per user will decline but data usage should more than compensate for that.

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Published: 17 Jan 2017, 11:25 AM IST
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