Jio Ya Maro

By any yardstick, disruption is not a stranger to Indian telecommunications. In little over a decade since the first mobile call was placed in India, the sector has seen tariffs hit ridiculously low levels, making it the lowest in any part of the world. Another decade down, it should be of no surprise if voice calling has become free.

If zero-tariff still sounds absurd and utopian, it is time for a rain check as Reliance Jio has gone ahead and given exactly that. This Mukesh Ambani project, estimated to have a capital outlay of close to Rs.100,000 crore, has left the industry stunned with its much-awaited launch. Users will not pay for voice calls, while data tariffs have been slashed to a tenth of what prevails today. “It is the biggest disruption in the sector since 1995. We have not seen anything like this,” says Romal Shetty, national head (telecom), KPMG.

In many ways, this development could not have come at a worse time for the sector, with its total debt standing at Rs.350,000 crore. The top three players, Bharti Airtel, Vodafone and Idea, account for about half of that. With Jio now playing spoilsport, this puts them in a very tricky situation. Voice calls, for most service providers, bring in 70% of income and it is this model that they have thrived on for many years now.

Unarguably, it has been proven in the past that attractive pricing can expand the market. That realisation for the industry set in after 2003, when incoming calls were made free. The move led to a huge surge in the number of mobile users which now stands at over a billion. But it changed the profitability of telcos forever, with companies going through a period of extraordinary turbulence and eventually settling for markedly lower margins.

With Jio’s offering, Shetty expects the next 12-18 months to be very difficult for the industry, where many operators will be fighting for survival. “The big players have deep pockets but the smaller ones will need to join hands. There will not be more than five players in this market over time,” he says. While the big three will have to fight it out, others like Tata DoCoMo, Aircel, MTS and Reliance Communications may have very little manoeuvrability. If the big three decide to match Jio’s offer, which they may be forced to, the financial impact may be devastating as over the last three years, they have invested around Rs.20,000 crore on their network and a significantly higher sum on buying spectrum.

Boxed into a corner

All this has come at a time when revenue from data has improved notably for operators. With about 30% coming from this business, the strategy was to eventually reduce the dependence on voice calls. Jio has wrecked havoc there too by dropping data tariffs as well. For an entry cost of Rs.149, a Jio user now gets free voice calling (not just to other Jio phones but all networks and free roaming thrown in) and 0.1 GB of data. Unlike Reliance’s earlier foray with Infocomm in 2002, the user this time is not stuck with a handset if he decides to change his service provider. He will just need to change the SIM card or Jio could become the second number on his phone.

In markets like South Korea, Japan and Britain, data brings in about 60% of revenue. “In India, it could stabilise at 45-50%,” thinks Shetty. The question is, can this surge in data eventually compensate telcos for the loss of revenue because of this tariff slash?

Reliance Jio is offering its services (data included) free of cost for four months till the end of December. The idea is to get in new users and pave the way either for them to port or just get a second number. While Jio will have to get right its customer acquisition strategy given that this came apart in 2003 when issues related to billing and fraudulent users was a bane, the other operators can’t simply sit tight assuming that this time will be a repeat of 2003. If Reliance has learnt from its past mistakes, the incumbents have more reason to worry this time around.