A sign of just how disruptive the RJio entry into the telecom market is going to be can be seen from the share prices of the industry – while Bharti Airtel fell 6.4% and Idea 10.8%, even Reliance shares fell 2.8%; keep in mind that this is when Jio is still a small share of the conglomerate’s revenues. It’s a brave new world now, and no one knows how it’s going to pan out, no one knows the effective price points being offered – the only thing that is known is that, with voice calls free, the industry is completely shaken up. Incumbent telcos like Airtel have been trying out some variants of ‘free’ voice, but since this is bundled with pretty expensive data, that is a deterrent. Another variant, without free voice calls, tried out by Airtel a few days ago offers data at prices that can be even lower than Rs 80 per GB of data (http://www.financialexpress.com/fe-columnist/bharti-airtel-takes-on-reliance-jio-offer-heres-how/363691/) – but RJio is offering data at less than Rs 50 per GB, and once the promised one million hotspots come up across the country where data will be unlimited and free for Jio subscribers, the plan looks even more attractive.
The catch here is that RJio services are available only on 4G handsets, so the speed at which these are rolled out is critical, as are the price points. RJio is offering new 4G Lyf handsets at Rs 2,999 which is steep for someone who is going in for the Rs 149 per month pack – but when something as aspirational as genuinely free voice is bundled, people may be willing to pay for it; and the company can look at innovative financing schemes. Airtel’s new pack that lowers prices to Rs 80 per GB and less also carries an upfront cost of Rs 1,498 per year.
If the Airtels, Vodafones and Ideas are seeing a possible 25-30% reduction in revenues if they decide to compete in earnest – and it seems difficult to see how they can avoid this – Reliance is not going to get off scot free either. Once RJio is officially launched and the clock starts ticking, the depreciation and amortization bill could be in the region of Rs 8,000-9,000 crore. If the telecom regulator does not succeed in reducing IUC charges, RJio will have to pay a large sum each time a free-voice customer connects to another network. Assuming 500 minutes of calling per month for 100 million customers, that’s Rs 8,400 crore of outgo a year – since some share will be on-net calls, Rs 5,000-6,000 crore seems more likely. The flip side is that with players like BSNL in deep trouble, industry consolidation will lead to higher revenues over a 2-3 year period, especially if consumers get hooked on to higher data-usage. The question is how many players have the capacity to survive the bloodbath. A lot will also depend on what kind of services are on offer. With RJio talking of a library of 10 million songs, 6,000 movies, 60,000 music videos and 1 lakh episodes of TV shows in 10 languages, apart from 300 live TV channels, telecom has gone way beyond the dumb-pipe era. None of this is to suggest Airtel and others haven’t moved from the dumb-pipe era or that Wynk movies and music, Hooq, Eros and so many more entertainment networks that telcos are using will not prove a match. But the services which were once a luxury or an add-on are now part of the basic package that needs to be offered.