Bhupesh Bhandari: Telecom: A fight to the finish

Reliance Jio's new tariff plan has compounded the worries of the incumbent networks

Reliance Jio’s new tariff plan, 30GB of data every month for Rs 303, has ended the suspense in the sector but has compounded the worries of the incumbent networks. Not only do they stand to lose a chunk of their premium customers to Reliance Jio, they will also be forced to slash tariffs. This will seriously erode their bottom-line.

Though it may have transformed India, telecom’s tryst with profits has been patchy. This is the third attack on its profits in less than 10 years. The first came in 2008-09 when the United Progressive Alliance handed out a string of new licences, under the infamous first-come, first-served policy, and the newcomers started with ridiculously low tariffs as an entry strategy. The incumbents dropped their tariffs to hold on to their market share, leading to a bloodbath. For more than a fleeting moment, it looked like the industry was headed for the dumps. Then the Supreme Court cancelled the new licences and the tariffs began to show a sensible recovery.

By then, the government had decided to auction spectrum and not allot it at low prices. As the 20-year lease on the first spectrum allocated in the mid-1990s was running out and millions of subscribers were getting added every month, the networks had no option but to bid aggressively in these auctions. All ended up with massive debts on their books as a result, which continues to stress them.

The Reliance Jio tariff plan is the third shock. Its tariff works out to Rs 10 per GB. The cheapest data packs out in the market are priced at Rs 25 per GB. This is bound to disrupt the market.

So far, the older networks insist that Reliance Jio has not eaten into their base of subscribers, and that most of the people who hold a Reliance Jio connection also use their services. 

The numbers indeed are interesting. In July and August, 4.91 million and 5.13 million people, respectively, ported to other networks, according to data released by the Telecom Regulatory Authority of India. This number has held constant after Reliance Jio launched: 5 million in September, 4.93 million in October, 4.76 million in November and 5.67 million in December.

At the same time, the number of new additions, which was in negative territory in July and August, shot through the roof during this period: 20.86 million in September, 28.68 million in October, 21.09 million in November and 27.86 million in December. Reliance Jio claims to have added 100 million subscribers since its launch. If you go by Trai numbers, it is safe to assume that many of its subscribers have more than one connection.

Anecdotally, the older networks say that most people have kept their connection for voice calls and have taken Reliance Jio for data. But they cannot be smug over this. In the initial days, there were some problems with voice calls on the Reliance Jio network, for which it blamed the older networks for not providing adequate connectivity — a charge they vehemently contested. Once the quality of voice calls gets fixed subscribers will find no reason to be on the older networks. In any case, the market is moving towards data and voice calls have become like a commodity. Superior voice calls alone cannot be an effective long-term survival strategy in this scenario.

If they want to take on Reliance Jio, the older networks have no option but to come out with similar tariff plans. The Reliance Jio offer of Rs 303 is valid up to March 31, 2018. Till then, at least, the networks need to devise a matching offer. This will bleed them. Their search for the pot of gold at the end of the rainbow just got longer. 

Few networks have made money in India. As a matter of record, no overseas player has reported profits: Vodafone, Telenor, Maxis, DoCoMo and others. Some have even had to write off investments. For many years to come, the interest of overseas investors, strategic or financial, in Indian telecom will stay tepid.

As the competition intensifies, there are definite moves towards consolidation. Reliance Communication and Aircel had announced that they will merge their operations. Vodafone and Idea Cellular have confirmed that they are in merger talks and the market expects an announcement soon. Bharti Airtel will acquire Telenor.

What this means is that from almost 10 networks at the peak, we may soon be in a situation where there are four or five. Mergers will help the networks cut costs, but that won’t provide enough of a cushion to take on Reliance Jio. It so happens that the current rules on ownership of spectrum make further consolidation impossible. So what we are going to see is a fight to the finish.

Anywhere in the world, the largest network makes money, while the second stays afloat. All others lose money. That’s why this race to the top, the infatuation with subscriber numbers — at all costs.