Bharti Airtel, which has the largest subscriber base in India, has seen its subscriber share decline to 23.6 per cent as of May 2017
Reliance's 'free' 4G phone has Indian rivals rattled
Shareholders at Reliance Industries' annual general meeting in Mumbai a few weeks ago cheered raucously as Mukesh Ambani, India's richest man and the chairman of the conglomerate, announced a “free” 4G phone.
The JioPhone, which will be available later this year, aimed at India's poor, is designed to help Reliance Jio - the telecoms company launched by the oil-focused group last September – bring even more customers on board.
Its rivals did not cheer the announcement, however. Reliance Jio, as it approaches a year of commercial operations, has shaken up the telecommunications market in India, with cut-price data deals, lengthy free trial offers and promises of free calls for life, hitting operators' revenues and profits hard as they have been forced into price wars.
Mr Ambani has said that “data is the new oil”, as Reliance increasingly focuses on cornering the market. Reliance Jio has acquired customers at an extremely fast pace, with its figures showing that it already has 125 million subscribers. Mr Ambani boasted that this “was the fastest adoption of any technology service, anywhere in the world”, saying that it was faster than the likes of Facebook and WhatsApp.
“Due to the Jio effect, many other telecom networks have introduced free 4G data offers and free unlimited voice calling offers,” says Dushyant Jani, the founder and chief executive of Mobclixs Technologies, based in Mumbai. “You can say a data war has been initiated by the Jio effect, all the telecom operators have started playing games to lure customers.”
The stakes are high. India, with more than 1.2 billion people, has a young population and rising incomes. It has the second-largest telecommunications market in the world after China.
“The telecom sector has witnessed a huge outflow of customers from one operator to other,” says Mr Jani. “To a large extent, telecom companies are finding it tough to monetise the flood of data running through their networks. Competition is taking its toll.”
Gross revenues in the industry declined 11 per cent to 408 billion rupees in the quarter ended March 2017 compared with the previous quarter, according to India Ratings and Research, which is part of Fitch Group. Meanwhile, the monthly average revenue per user slumped by 20 per cent to 83 rupees (Dh4.77) over the same period, the figures from India Ratings reveal. Data usage is rapidly rising, increasing to 1,000MB per user, or 1GB, in the quarter to end of March compared to 884MB in the previous quarter, while data prices fell to 6.4 rupees per MB from 16 rupees per MB.
“[We] expect average revenue per use levels to continue to remain subdued in view of unlimited voice and low cost data tariffs,” says Tanu Sharma, the associate director at India Ratings.
India Ratings' research shows that Bharti Airtel, which has the largest subscriber base in India, has seen its subscriber share decline to 23.6 per cent as of May 2017 from 25.1 per cent in August last year, before Jio's launch. The next biggest player, Vodafone, has declined to 18 per cent from 20 per cent. Jio now has a 9.9 per cent share of the market.
Malik Gilani, the founder and chief executive of Esar Media and Advertising in Mumbai, says that the entry of Jio “has created a fair market for consumers”.
“This revolution has forced the other telcos to reduce the rates,” he says.
The impact of this can clearly be seen in companies' performances. The Indian operator Idea, the country's third-largest telco, posted a loss of more than 8 billion rupees in the quarter to the end of June compare with a profit of over 2bn rupees during the same period a year earlier.
In March, Vodafone and Idea announced plans for a merger, which would create the biggest mobile phone operator in India. It has been going through the process of securing clearances for the deal before it can go ahead with the plan.
But experts say that while customers are reaping the benefits in the short term, for telcos, the current scenario is ultimately unsustainable.
“The investment capability of the industry will be impaired for a long period,” says Surya Mahadevan, who has three decades of experience in the telecom sector and is now a professor at Tapmi, a management institute in India.
He adds that, apart from the largest players, “all other competition is already at the exit door” and smaller companies will merge, while others will “muddle along”.
“Competitors will be under attack across all geography and customer segments,” he says. “They will suffer from both churn and lower revenue and comparable-offer expectations from customers who stay back. Competition will face mounting erosion of revenue and profit as the overall revenue of the industry shrinks despite ballooning usage.”
Mr Mahadevan says Jio's strategy is that its “telecom play has to be to large scale and size and that the market cannot be penetrated one step at a time but only by crashing through with disruptive offers”.
“In one potential scenario, when Jio hits 30 per cent revenue market share, it will probably increase the tariff for new acquisition and that will signal the cessation of war,” he says. “This might take 30 months to 36 months. Competition would be fully stretched financially by that time and would have survived only because exit costs are higher than staying costs. It will probably take another three years for the bruises to heal and for some colour to return to the industry.”
If this continues for longer than expected, he explains that weak players would be “locked in a stalemate and without resources to invest in 5G”.
Foreign operators are “unlikely” to be attracted to India's telecom industry, Mr Mahadevan says, after a few years ago a US$40bn telecoms corruption case hit the industry. This resulted in the cancellation of 122 licences – with the UAE's Etisalat among those burned when it became unwittingly entangled in the case after entering in India's telecoms sector.
But others argue that the shifting landscape of the telecoms market means that there could be significant opportunities ahead to be tapped.
“The whole perception of 4G has changed from expensive and exclusive to affordable and mass-market,” says Vamshi Reddy, the chief executive of Apalya Technologies. "Consumption of data has increased manifold in the past 18 months. Consumer spend on data is now getting ahead of voice spends and operators are already realigning and prioritising data offerings.”
That has certainly been Mr Ambani's strategy, and time will tell exactly how profitable this will ultimately be.
“We simply cannot idly stand by when such a large proportion of our fellow citizens are unable to participate in the digital revolution sweeping the nation,” Mr Ambani told the packed audience at the group's annual general meeting. “Jio will democratise the digital culture in India. Indians even in the remotest villages will now have the same access to digital entertainment, digital learning.”