Reliance Jio's Entry to 4G Realm Estimated to Be Pretty Disruptive
BENGALURU: Reliance JIO’s entry in to the 4G realm has already sent waves of caution amongst its competitors. Bharti Airtel chairman Sunil Mittal said, “What this industry has seen (so far) is only an erosion of tariffs. With Jio coming in, we expect massive erosion. It is going to add to pressure in the market,”. Airtel, Vodafone, Idea are making it difficult for Reliance Jio to poach customers. Earlier this month Idea Cellular had slashed effective data rates by offering up to 45% more data benefits for its prepaid users in India who use less than 1GB. In a similar move Bharti AirtelBSE -0.12 % has slashed effective data rates for its pre-paid customers, offering up to 67% more benefits for the same price.
There was a period when many new operators India’s telecom market in 2008 leading to a scenario of intense competition which apparently pushed call rates down to record lows which affected revenue and profits of even the industry giants. Reliance Jio, on the other hand is planning to launch attractive post-paid plans with up to 5-10 times more data and free voice, video minutes, compared to other post-paid plans available in the market.
In an interview with ET, Sanjay Kapoor, former CEO of Bharti Airtel said, “RIL (Reliance Industries Limited) will increase the consumption as they have created enhanced capacities and therefore if the consumer is consuming 700-800 mega bytes of data today they would want it to become a 10-12 gigabytes. This is where the existing capacities of the operators truly come under a challenge. The RIL will also set the price equation because they do not have any existing revenues and can go down and create a habit around high consumption and affordable pricing. And if they bundle voice inside data along with it then that will create new challenge for everybody”.
Commenting about the challenges ahead for Reliance Jio he said, “Whether it is RIL or other telecom operators, will have to go through that experiential curve and perfection. And optimization of the network will take a couple of years for anybody as they are entering with no customers or probably a few million customers to begin with and therefore their network will seem all singing all dancing and will also pose a challenge.”
According to Credit Suisse, Jio's entry will be disruptive for the sector. It cut its estimates on the No. 1 carrier's pre-tax numbers for financial year 2016-17 by 10-15 per cent, until any tariff increases come through. The current consensus estimates that Bharti and No. 2 Idea Cellular's EBITDA will grow 10-15 per cent annually over the next three years. Their research shows that Reliance Jio will be hitting the market with the largest network by capacity. The extension of Jio promo offer to Samsung phones is to be seen as a progression of the launch.
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