The much anticipated ‘disruptive’ launch of telecom giant Reliance Jio is finally here. The company, widely expected to take away a chunk of subscribers from India’s top three incumbent players, has indicated it will start operations this December, after several delays.
R-Jio should have begun operations in October this year, according to the licence conditions. Close to six years after it first bid for spectrum in early 2010, the company is making a foray into a relatively mature market.
Challenges
However, perceptions about snatching away market share or starting a tariff war all over again may be a tad overdone. While Reliance Jio may emerge as a reasonably strong player, it is likely to face quite a few challenges in expanding its footprint.
Now, Reliance Jio has licences to offer both voice and data services, though its focus is expected to be on the latter. Urban penetration is more than 140 per cent, according to a report from the telecom regulator, while rural tele-density is less than 50 per cent. While it can look to tap the rural market, tariff rates need to be tempered, given the price-sensitive nature of services in these areas.
Even in urban centres, there is limited scope for fighting competition on tariffs. A price war could be a sure race to the bottom as several new entrants realised to their detriment in the hyper-competitive period of 2008-12.
R-Jio company has invested more than $10 billion so far for spectrum and capex to roll out its services. So, there is a fair bit of debt to service, which is an added reason not to offer margin-eroding tariffs.
Entrenched incumbents
Reliance Jio has indicated that it would take three more years to achieve 100 per cent network coverage. That still gives the likes of Bharti Airtel, Idea Cellular and Vodafone, apart from regionally strong players such as Reliance Communications, Tata Teleservices and Aircel considerable time to strengthen their presence.
The revenue market share among telecom operators has become extremely skewed towards the top three in the last few years. Bharti Airtel, Idea Cellular and Vodafone control nearly 75 per cent of the revenue market share, with six to seven players vying for the rest of the pie. Making a dent is clearly going to be a challenge.
Also, no other operator in India offers voice services in the 2300 MHz band. So, it remains to be seen if a maiden voice venture from this band would work well enough, given the challenges of getting proper reception within buildings.
Blend of offerings
Of course, the company has spectrum in the 2300 MHz, 1800 MHz and 800 MHz bands, which means it can offer a blend of offerings.
Recent news reports suggest that it would offer data and voice services across the three bands in which it holds spectrum. Offering voice and data seamlessly on a pan-India basis is thus a possibility. Launching 4G services, which offer faster data rates than other offerings, also means the company plans to use spectrum efficiently. Thus, Reliance Jio may be able to pack in more subscribers for a given quantum of spectrum compared to other technologies.
Reliance Jio does have the last-mile connectivity mostly tied up, with the signing of tower-sharing deals with large players such as Indus Towers and Viom Networks. This will ensure considerable reach.
Given its focus on data, Reliance Jio is targeting the right segment, since even the top operators generate 15-20 per cent revenues from data services which have more than doubled in the last two or three years.
4G competition
But even in 4G, there is likely to be competition given that Bharti Airtel has launched services is several cities and others may follow soon. While Reliance Jio has promised to offer 4G-compatible handsets at less than ₹4,000 and a whole bouquet of services for ₹300-500, how these will be implemented remains to be seen.
The other key aspect to note is that in India subscribers and operators have just about made some headway in offering 3G services. It remains to be seen if subscribers will immediately switch over to a newer generation of technology, which may entail a change of handsets.
Over time, it may still emerge a strong fifth player in the Indian telecom market.