RJio’s Rs 49 Per Month Plan Could Force Incumbents Shift To VoLTE 4G

by Moumita Deb Choudhury    Jan 29, 2018

It is indeed a pressure cooker situation for old telecom operators- Bharti Airtel, Idea Cellular and Vodafone India, with the 16 months old, new telecom entrant- Reliance Jio evaporating the one-time so-called high price telecom rates.

From its very entry, the Mukesh Ambani led company has shown one disruption after the other in the telecom sector.

While for the consumers the company may be perceived as an avatar of sorts with innumerous benefits for both voice and data, for its competitors, the newcomer is a threat to their revenue and profitability.

RJio

“Incumbents’ move from a selective market share defence mode to a more aggressive one was met with an expression of displeasure from Jio in the form of fresh price cuts,” said a Kotak Institutional Equities report.

“RIL (Reliance Industries Ltd, parent of Reliance Jio), in its third quarter analyst meet, was quite explicit about the thought process behind the price cut move—it will not let incumbents get close on the price-value equation and any such effort by the incumbents would be met with similar cuts,” it said.

RJio the true game changer:

It is such an uncommon scene created by the Ambani-led company here, where the newbie plays the first card and later everyone else clones the move to stay in the game.

Reliance RJio much-hyped commercial operations that started on September 5, 2016 promised to offer all services- Voice and Data- free until the end of the end, which was a offer unheard and unthought of by the consumers and the veteran players in the segment.

However, the too good to be true offer was then extended for months to thereafter to the delight of the consumers and despair of the operators.

And now the latest Reliance Jio’s Rs. 49 per month offer to JioPhone users is a strike to other operators that will force them to change the design of their business.

The new RJio offer may force the top three telcos to shut their 2G legacy networks and shift to VoLTE-based 4G networks to save their rapidly falling average revenue per user (ARPU), analysts said.

 

The latest RJio offer is the sector’s lowest price plan offering free voice for life and 1 GB data at 4G speed over a 28-day validity period. This offer shows promise of attracting many more low-end 2G voice customers across the country who so far have been reluctant to adopt 4G.

More pain for Incumbents:

This move of RJio is likely to create more financial trouble to incumbents as it is placed closely with Jio’s equally aggressive Rs.98 per month 4G entry-level plan that is expected to dampen ARPU, a significant performance metric of incumbent telecom operators by upto one-third in the coming quarter.

RJio’s offer “would draw 2G voice subscribers” away from Idea, Vodafone and Airtel as “Jio’s feature phone pricing is as much as 30-50 percent cheaper than incumbents’ rates,” said brokerage JP Morgan. 

The 2G feature phone segment constitutes a huge 70 percent of the country’s over a billion mobile user base contributing about half of the sector revenues, said the US-based brokerage.

The telecom sector, already taken for a toss by ruthless price competition and debt of Rs. 5 lakh-crore, registered another poor quarter.

Jio’s new pricing moves to woo millions of 2G feature phone customers of incumbent carriers is likely to bruise the latter’s already weak financials.

“We wonder if there is an economic case anymore for incumbents to keep their 2G networks running if the JioPhone even sees modest success,” said Kotak. “The ultra-expensive 900 MHz spectrum that incumbents are using for 2G would fail the impairment test as 2G spectrum”, especially since the steep cut in mobile termination charges has “anyways killed the incoming ARPU leg of 2G network economics,” it added.

The German investment bank Deutsche Bank said Jio, at a recent analyst, meet indicated that it had “worked with its Chinese vendors to build inventory prior to the current JioPhone offer”, although “the price plan is lower than expected”. 

Launched by Jio’s sister company, Reliance Retail, the JioPhone comes at a “fully refundable” Rs. 1,500 deposit which will be refunded after three years on return of the device. To get a hand on the refund, subscribers need to recharge for a minimum Rs. 1,500 a year.

Airtel, Idea and Vodafone have recently announced cashback offers on their 4G smartphones to bring down the effective price of the devices to under Rs 1000.As per experts, the competition is expected to intensify even further which is force the incumbents to be more innovative in terms of price parity to stay afloat.