How badly has Reliance Jio Infocomm Ltd’s launch hit incumbents such as Bharti Airtel Ltd and Idea Cellular Ltd?
The only way to know is to see how customers respond when Reliance Jio starts charging customers for its services.
This event has been deferred by at least three months, with the company now extending its free services till the end of March.
But, while the exact nature of the impact is awaited, it’s already clear that the outcome will be largely negative for incumbents.
Shares of Idea have fallen by more than 20% since the 1 September launch of Reliance Jio’s services.
Even if Reliance Jio isn’t able to retain a large proportion of its subscriber base when it starts charging for its services, the fact remains that it is in for the long haul, and will sustain competitive pressure.
Besides, as the September quarter results showed, incumbents have already begun to offer far higher data volumes at the same price point, resulting in a drop in average realizations.
And while the drop in realizations has been offset by higher volume, note that data revenues were more or less flat on a sequential basis.
Flat revenues are far from sufficient to justify the massive investments in spectrum acquisition and network rollouts.
Clearly, investors have much to worry about.
“We continue to stay cautious on the Indian telecom sector, with sustained pressure from the entry of the large capacity new entrant Reliance Jio,” analysts at Credit Suisse Securities (India) Pvt. Ltd said in a 1 December note to clients.
In an earlier note, they wrote, “The announcement of an additional Rs1 trillion investment by Reliance Jio over the next four years (i.e., another Idea Cellular equivalent) only raises the risk of further cash strain on other telcos, in a seemingly never ending battle of asset building.”
As pointed out earlier in this column, the law of diminishing returns is at play in the sector.
Unless there is significant consolidation, such as Vodafone India Ltd and Idea coming together, and signs of pricing stability, wealth erosion can be expected to continue.