On 1st September 2016, Reliance Industries Chairman, Mukesh Ambani, announced details of the Reliance Jio launch in the company’s 42nd Annual General Meeting
Per the company it will start offering services from 5th September but the commercial launch will be on 31st December, 2016. While the company has stated an altruistic objective for Reliance Jio, that of putting India on the global map for mobile broadband Internet access, there is no denying that this announcement has jolted the country’s telecom sector.
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 company expects to achieve an Average Revenue Per User (ARPU) of approximately INR 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 INR 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 sizeable business outcomes, both in terms of revenue and subscribers. Furthermore, we estimate that it will take 3-5 Financial Year (FY) 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 sector.
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 Jio.
The Onset Of Price Wars. This announcement will unleash price wars among telecom operators. Players including Airtel, Vodafone, Idea 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%.
Either Invest Or Consolidate. Jio’s announcement will further add bottom-line pressures on the already struggling telecom operators. At Greyhound Research we believe the Indian market has an appetite for 2-3 Pan-India players at best. With deep pockets, the likes of Reliance and Bharti 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 INR 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 Startups. 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 TRAI. Two, it can also lead to a situation where there isn’t enough volume and variety of apps for users to consume as part of VAS offerings. While Reliance has announced an investment of INR 5,000 crore towards the Jio Digital India Startup Fund, the current VAS ecosystem needs another 2-3 years for it to mature.
Focus On Core Telecom Operations. Unlike its peers who have steered clear of non-core telecom operations (particularly Handsets), Reliance Jio has chosen otherwise. Per the company, Reliance Jio will offer 4G LTE smartphones starting from INR 2,999. While this may sound like great news for consumers, it is critical to note Reliance’s 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 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.
How Can Telecom Operators Across The Globe Win Such Wars?
To know more about how to how to use customer experience to win this war and learn about Greyhound Research global, annual Buy-side and Sell-side trackers, please write to our Client Centricity Team at connect@greyhoundgroup.com.
A version of this research note appeared on HT Mint on 2 September 2016.
Lead Analyst:
Sanchit Vir Gogia: Sanchit is the Chief Analyst & CEO of Greyhound Research, an Award-Winning, Global, Independent IT & Telecom Research & Advisory firm. He also serves as Chief Futurist, Founder & CEO of Greyhound Knowledge Group, a Global, Multi-Disciplinary Research & Advisory firm. Given his expertise and passion for Technology, Sanchit also doubles up as the CIO for Greyhound Knowledge Group companies and is building a technology-led Research & Advisory business. In his another avatar, Sanchit is an Advisor To The Board (for IT & Business decisions) of a US$100 Million+ organisation in the Metal Industry. To read more about him, click here.
Contributing Analyst:
Anshoo Nandwaani: Anshoo serves as a VP and Principal Analyst with Greyhound Research, an Award-Winning, Global, Independent IT & Telecom Research & Advisory firm. She also serves as Chief Human Resources Officer (CHRO) of Greyhound Knowledge Group, a Global, Award-Winning, Multi-Disciplinary Research & Advisory Group.In her current role, Anshoo leads the research agenda for Digital Transformation Experience & Engagement Outcomes. As part of this, she researches how Digital Transformation can help organisations enhance Experience & Engagement with their stakeholders spanning Customers, Workforce, Partners, Investors and Influencers. More specifically she studies the impact of vertical-specific processes and people-centric technologies on stakeholder Experience & Engagement.To read more about her, click here.
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