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Reliance Industries Ltd’s (RIL) telecom unit will start offering services from 5 September, but the commercial launch will be about three months later in 31 December.
While the company has stated an altruistic objective for Reliance Jio Infocomm Ltd—that of putting India on the global map for mobile broadband Internet access—there is no denying that this announcement has jolted the telecom ecosystem across the country.
First, let’s deep-dive on the math behind Reliance Jio’s expectation of breaking even or turning profitable in 12 months of operation.
The firm expects to achieve an average revenue per user (Arpu) of approximately Rs.300 on a subscriber base of 100 million within 12 months of commercial operation. These bullish numbers are proposed on the back of free voice services and rock-bottom data pricing expected to bring an influx of users. However, Greyhound Research believes achieving Arpu of Rs.300 is a lofty task and nearly two times of the industry standard.
We are also of the firm belief that it may take the company 12-18 months (post commercial launch) before they start seeing sizable business outcomes, both in terms of revenue and subscribers. Furthermore, we estimate that it will take 3-5 financial year cycles for the company to report profits.
Below are some ways in which Greyhound Research expects this announcement to impact one and all in the country’s telecom ecosystem.
Start of a two-SIM culture
With Reliance Jio’s clear focus on data, Greyhound Research believes this announcement will spark a two-SIM culture in the country. With its network chiefly built for data, voice quality may not compare to its peers and consumers are likely to opt for different SIMs for voice and data. This culture may also be triggered for other reasons including yet-to-be-known service levels from Reliance Jio.
The onset of price wars
This announcement will unleash price wars among telecom operators. Players including Bharti Airtel Ltd, Vodafone India Ltd, Idea Cellular Ltd and others will be under tremendous pressure to launch both monetary and service measures to retain customers. Greyhound Research believes this move will benefit consumers who can expect the cost for data (not voice) to reduce in the range of 25-35%.
Invest or consolidate
Jio’s announcement will further add bottomline pressures on the already struggling telecom operators. At Greyhound Research, we believe the Indian market has an appetite for two or three pan-India players at best. With deep pockets, the likes of Reliance Jio and Bharti Airtel are highly likely to come out triumphant in this war; Vodafone and Idea could well be forced to invest more aggressively or consolidate.
Significant focus on VAS
By making data as the key hinge of their announcement and offering free apps worth Rs.15,000, the company has made clear its focus on value-added services (VAS). In an effort to fight back, other telecom operators will be forced to refresh their VAS offerings including partnerships with VAS providers and start-ups.
Greyhound Research believes this will have a two-fold impact. One, this can potentially lead to net neutrality issues, as seen in the past with Airtel Zero and Facebook Free Basics, and very well run into complications with the telecom regulator. Two, it can also lead to a situation where there is not enough volume and variety of apps for users to consume as part of VAS offerings. While Reliance has announced an investment of Rs.5,000 crore towards Jio Digital India Startup Fund, the current VAS ecosystem needs 2-3 years to mature.
Focus on core telecom ops
Unlike its peers, which have steered clear of non-core telecom operations (particularly handsets), Reliance Jio has chosen otherwise. According to the company, Reliance Jio will offer 4G LTE smartphones starting at Rs.2,999. While this may sound like great news for consumers, it is critical to note Reliance Industries’ struggles with managing and scaling the CDMA handset business in the past. Greyhound Research believes with increasing competition, it is critical for telecom operators to focus on core operations.
In the end, organisational DNA matters
With the consumer mindshare and loyalty switching at the drop of a hat, telecom operators must undividedly focus on what truly matters: delivering unparalleled customer experience. The recent technology investments by Airtel and Vodafone on Data Analytics exemplify this.
At Greyhound Research, we believe, in the end, the winners in this game will be the ones who offer consistent and reliable experiences and not necessarily free services.
Source: Live Mint