Battling it out with Reliance Jio

Battling it out with Reliance Jio

Battling it out with Reliance Jio

Earlier this week, the second largest telecom operator of the country, Vodafone, joined the ranks of Airtel and Idea, and announced its plans to go for tariff cuts. The initial rate-cuts by these firms are focused on pre-paid customers, who essentially make up 90% of their customer base.

“We may announce a data tariff cut in a day or two. We always try to match customers’ expectations, giving them value, and will continue to do so,” Vodafone chief executive Sunil Sood said recently.

Bharti Airtel has been slashing effective data rates for its pre-paid customers and offered up to 67% more benefits for the same price. Last week, Idea Cellular had also slashed effective data rates by offering up to 67% data benefits for its prepaid users in India, who use less than 1GB.

Monsoon Hungama

The irony is that these price cuts have come in a situation where big telecom companies have been telling the regulator that they may need to increase data prices to Rs 1,000-2,500 per GB, if net neutrality norms are not eased.

The moves are seen as inspired by the changes that will take place after August 15, the day when Reliance Jio is expected to announce its blockbuster ‘Freedom Offer’ similar to ‘Monsoon Hungama’.

But telcos decline to state that it’s a precursor to Reliance Jio. “At Airtel, we always aim to deliver a great mobile experience and value to our customers. These refreshed data packs will help drive consumption and boost uptake of mobile internet in the country,” says Ajai Puri, Director – Operations (India and South Asia), Bharti Airtel.

“Given the deepening smartphone penetration and Airtel’s rollout of data networks across India, we believe that these packs will also drive affordability, and bring new users online,” Puri goes on, declining the competition factor coming into play.

Jio — the scarecrow

But, the catch here is that most companies in the contemporary era tend to keep an arm’s distance when it comes to talking about competition. The point to note here is that the proposed launch of Jio must have caused a lot of flutter with telcos. Reliance Communication, founded in 2002 under the umbrella of united Reliance group, proved to be disruptive for existing players back then. Backed by its huge asset base, Reliance had slashed the telecom rates by notches. This essentially was the penetration pricing strategy followed by Reliance Communication. That is probably the reason why airline companies also don’t want Reliance to venture into the airline business. And their fears are justified, as the industry runs on low margins.

Retention is the key

So does that impact the prospects of Reliance Jio, once they take the dip in the market? “The thing is that this is clearly an effort by the existing service providers to retain their top quality subscribers. It doesn’t mean that Reliance would not be able to match their price. It just means that there is an effort, and the idea is that once Jio gets launched to get people hooked on, get higher consumption. It is much more easier to retain them. This is all in preparation to that,” says Romal Shetty, Chief Operating Officer — Advisory and National Head of Telecom Sector at KPMG India.

He also believes that data tariffs are not low in India, as are voice tariffs. “While one can confidently say that voice tariffs are amongst the lowest in India, the same can’t be said about data tariffs. One of the primary reasons is not having economies of scale. Only 14% of existing mobile users use broadband data, and further 4G uptake (data usage being one of the primary drivers) has not been in line with expectations,” says Shetty, emphasising the fact that data penetration in India is very low.

“With the entry of a new operator round the corner, existing operators would want to increase the uptake of data services by introduction of affordable sachet packs to users who traditionally haven’t used data to a great extent, and at the same time, increase the average revenue per user by upselling to already existing heavy data users,” opines Shetty, believing that the advent of Jio does have an impact on the industry.

Quality matters more

On the other hand, there are analysts, who believe that it is quality more than the price that will drive revenues for telcos. “I see it little differently. One is, obviously that is a significant disruption in the market place, in terms of complete quality and the significant spectrum that would be available to a player like Reliance, to really change the customer experience. Today, we are not talking only about voice. We are talking of voice, data, services, and everything else on the mobile. So the availability of significant spectrum bandwidth completely changes the customer experience,” says Raja Lahiri, Partner, Grant Thornton India.

“So, this means that more than the price, it is the quality that matters more,” Lahiri opines, adding that the price is also important to a certain extent.

“Another trend being noticed is that now, data is increasingly being used for voice services as well. The recent reduction in data tariffs is a step towards this direction. It has been seen in the past that it has been difficult for new operators to gain market leader positions in circles where they have entered late, and part of this reduction in data prices is an effort by existing operators towards retaining high quality customers and getting them habituated towards increased data consumption,” opines Shetty.

Exit on cards?

The telecom industry in India started with very limited players, thus giving them the super-normal profits. Following the trend, many other firms entered the fray, thus eliminating super normal profits. So with all these price cuts, are we heading towards a scenario where companies will have below normal profits, with many firms exiting? Lahiri believes that we have not yet reached that stage.

Whatever the case is, it needs to be seen as to how the advent of Jio is going to impact the industry. But the thing is, telcos have learnt their lessons.

Though they had to cut off tariffs after Reliance Communication started operations, yet the latter took away a large chunk of their customer base. This time, they are giving it all to retain their existing customer base. Anyway, the coming months seem to be interesting for the telecom market in India.