All that glitters is not gold

When industrialist Mukesh Ambani outlined his grand plan on new cellular company Reliance Jio (RJio) Infocomm Ltd on September 1, there was euphoria among the public. When RJio was commercially launched on September 5, there was a big swarm of people at Reliance Digital showrooms and stores seeking SIM cards. However, the excitement may not last long.

As more and more people started buying new connections, complaints of call drops and poor connectivity surfaced. The biggest challenge before Reliance Jio is to give good customer service as incumbent operators are facing severe criticism from subscribers over deteriorating quality of performance. Indeed, Mukesh Ambani at the Reliance AGM emphasised upon the quality of service from his new venture as he embarked upon his ambitious plan to add 100 million customers at the shortest possible time.

As complaints on call drops mounted, Reliance engaged in a battle with the existing operators, including Airtel, Vodafone and Idea, on the inter-connection issue. After the Telecom Regulatory Authority of India (Trai) intervention, other telecom operators promised to address the issue. RJio, knowing well that it can’t depend only on the new connections to increase the customer base, has to lure subscribers from other operators. RJio has now knocked on Trai’s doors, charging the telecom operators with having refused to help their mobile phone users to port or switch to the new operator.

Despite RJio boasting about its tariff being the cheapest, the tariff plan announced by the company suit those who spend more than Rs 500 per month for data. The basic data offer is similar to its market rivals. The entry level pack of Rs 149 offers just 300 MB of data, 100 SMS and free calling with validity of 28 days. As most of the smartphone holders use more than 300 MB data, they have to switch to the second option of Rs 499 per month which offers 4GB data, and free calling with validity of 28 days. An average user who is currently spending Rs 200 per month will now have to be ready to spend Rs 499 to enjoy the 4GB data and unlimited calling. With Indians being price sensitive, one has to wait and see whether the average user will be ready to spend more.  

As Reliance is only available in 4G-enabled handset, if existing mobile users of other companies want to switch to Reliance Jio, their mobiles will have to be 4G-enabled or they have shell out around Rs 3,000 to buy a new one. At present, only 6-8% of mobile users have 4G-enabled phone. RJio’s plan to add a million consumers each day using e-KYC (or compliance with Know Your Customer norms in electronic form) is running into rough weather as the e-KYC facility is now available only in Mumbai and New Delhi.

Achieving by default

RJio is betting on data for its revenue as the company has announced free voice for all customers. “This is not a new dream, but so far it has been difficult to implement. By setting voice tariff at zero, Reliance will achieve this by default. The question is, will the data revenues be enough for a viable business?” says Rohit Prasad, professor of Economics at the Management Development Institute, Gurgaon. But mobile data consumption in India is also low at below 300 MB per user per month. To ensure returns, RJio will need to keep average revenue per users (ARPU) high, and also attract a large subscriber base.

At present, mobile data accounts for about 20% of the telecom operators’ revenues, says a report by ICRA. The report also said that the telecom operators are expected to rake in Rs 95,500 crore in revenues from mobile data services over the next five years. However, some analysts say even 80-90% of the use of data is still around basic applications such as Facebook, WhatsApp or videos.

However, credit rating agency Moodys says the success of RJio hinges on the increased penetration of 4G devices and change in data consumption patterns in India. The Reliance Industries Limited’s move to high-speed internet, combined with some of the lowest data tariffs in the world, should see data consumption rise significantly, it said. But the entry of a new company to the sector will definitely force the existing players to improve the services by addressing issues like call drops.

“Apart from improving services, I expect to see greater use of Wi-Fi hotspots. Currently, India lags in the use of Wi-Fi to ease spectrum bottlenecks,” says Prasad. Reliance has to depend on urban areas where data usage is more compared to rural areas. According to the Trai report, the share of urban and rural subscribers in total number of wireless subscribers was 56.88% and 43.12%, respectively, by the end of June, 2016.