When Mukesh Ambani-owned Reliance Jio launched mobile services starting 3 September, offering free voice for ever and free data for three months, it was believed that the real losers will be the incumbents – Bharti Airtel, Vodafone and Idea Cellular. After all voice accounts for 73% of their revenues. But, two months down the road, it emerges that things are not as simple as they seem.
That’s because while all Reliance Jio subscribers use smartphones, that’s not the case with subscribers of the incumbents. As Bharti Airtel’s Gopal Vittal mentioned, 75% of its 260 million subscribers do not use data and do not have smartphones. The situation for Vodafone is quite similar: only 30% of its 200 million subscribers have 3G/4G enabled devices, with only 9% with 4G devices. So for Jio to pose a challenge to the incumbents, their
subscribers need to first shift to smartphones.
That’s where the cost challenge comes in. While feature phones are priced below Rs 1,000, the cheapest smartphones come for around Rs 3,000. The Rs 2,000 gap is quite difficult for low-income users to bridge easily.
Additionally, many low-income users are still not aware of what all the internet offers. However, those subscribers of incumbents who could afford a smartphone have done the obvious: they retained their existing mobile connection while using a 4G-VoLTE enabled device for accessing the Jio network.
What that means is that it is unlikely that incumbents will offer free voice services in the immediate future. There could be a tempering of rates in the short term.
Over the next few months, India could move towards a model where there will be kinds of pricing for mobile services. At the higher-end where subscribers can afford smartphones, there will be bundled offers that provide both voice and data for a fixed monthly payout. For the lower end subscribers, expect the separate plans for data and voice to continue.
As things stand, Jio plans to charge subscribers Rs 499 to access 4GB of data and 8GB of wife data for 28 days with free voice thrown in. While that sounds cheap, the fact is that the ARPU of these subscribers is 2.7 times the current ARPU of Rs 188. Essentially, that makes the Jio plan as value accretive. It remains to be seen whether Jio sticks to this rate or lowers it by the time it starts charging subscribers. That could well be the decider.
But, so long as low-end subscribers do not shift to smartphones quickly, there is no immediate threat to the voice revenues of the incumbents.