Reliance Jio may have brought a large number of customers on its network even before the formal launch of its 4G LTE service by offering three-month free data but analysts are sceptical that this strategy would yield long-term financial returns.
According to some analysts, the disruptive pre-launch strategy, which has earned the ire of the incumbents in the sector making them to respond with similar offers, reveals the suppressed demand for data in the country. But, attracting customers with a free offer may not necessarily transform into financial gains.
Convergence Catalyst, a research and advisory firm in the telecom and media space, has come out with a report analysing Jio’s strategy.
Its author, Jayanth Kolla, said by acquiring a large number of subscribers in a short span of time, Jio will be stretching its operational and strategic bandwidth. “The choice for the company is either a structured, sustainable and profitable growth with good quality subscribers in the long term or low quality, non-profitable, unsustainable high market-share in the short term.”
The strategy will also sprout a few risks. If not executed carefully, said analysts, Jio’s strategy of acquiring a mass market will end up like Reliance Communications, which eroded profitability trying to offer cheap CDMA — a relatively expensive but superior technology in terms of both voice and data.
“The leading CDMA carriers, Reliance Communications and Tata Teleservices, in order to compete with the GSM players, started offering subsidised (low-end) devices and services bundles targeting bottom-of-the-pyramid, mass market, low-quality subscribers,” said the Convergence Catalyst report.
“As a result, their CDMA business was never really profitable and the companies are now shutting down and/or significantly slowing their operations.”
Garnering a large number of subscribers in a short span is clearly Jio’s ambition. The company intends to acquire 100 million subscribers in the first year of its launch.
Competition claims Jio will not be able to attract new subscribers as there are numerous issues that are currently preventing penetration.
Abhishek Gupta, a telecom analyst at IDFC Securities, said: “There are low-hanging fruits for Jio in the form of subscribers with fringe players. We believe the 100-million mark is more like an aspiration. Even if Jio has 40-50 million subscribers in the 12-month from its launch, it would be a reasonably successful.”
Getting too many subscribers could also expose Jio to technological challenges.
Jio is currently using a combination of different types of spectrum — 1,800 Mhz, 850 Mhz and 2,300 Mhz.
Convergence Catalyst’s Kolla wrote in his report that the spectrum in the 850 Mhz band is not contiguous in many circles, which will impact delivering quality service in select circles.
Morgan Stanley has said in a recent report: “Jio’s test launches have been successful. RIL is garnering as much as 20 per cent market share data volume, but with no revenues currently Revenues are likely to start by January 2017 versus our prior assumption of October 2016.”
The going ahead might, however, be tough, with the data market in the country slowing in recent months.