RJio Has a Bonanza for Consumers, But How Long Will the Party Last?

Thedirt cheap data tariffs announced by Reliance Industries Ltd (RIL) Chairman Mukesh Ambani for RJio services will undoubtedly be good news for India’s telecom subscribers, who already enjoy the world’s lowest voice charges. But for incumbents like Bharti Airtel, Vodafone, Idea and smaller telecom operators, RJio’s aggressive plans will bring in a lot of pain initially as they too will also have to lower data tariffs. In the long run though, analysts concur that tariffs will have to rise across the board so that all players (or at least the big three or four) remain in business.

At RIL’s 42nd annual general meeting (AGM) today, Ambani announced jaw-dropping tariffs for data on the Rjio network, promised all voice calls free forever, no roaming charges, low international call charges and also bundled in low cost 4G enabled handsets to provide a complete ecosystem for consumers to join the RJio family. He also said that starting September 5, everything – voice, data, apps etc – will be free on the RJio network till December 31.

From 1 January, 2017, RJio will offer data tariff as low as five paisa per MB, a tenth of the current tariff available in the market. The RJio plans will range from Rs 149 per month to Rs 4,999 per month. For students, RJio will offer 25 percent more data, promises an end to surge pricing on Diwali or New Year, simplification of myriad and confusing tariff plans by merging them into just 10 different plans. Also on offer is unlimited data for customers at night and affordable 4G Lyf handsets at prices starting at Rs 2,999. At first glance, these are unbelievable offers which could shift the market quickly in favour of RJio.

But this is easier said than done. An industry analyst pointed out that the RJio aggression in tariffs is an attempt to capture market share by shifting the market from predominantly voice to data. As of now, only about a fourth of the revenue of existing telecom companies comes from data. RJio’s strategy, according to this analyst, might increase the overall industry RPU (revenue per user) by focusing on data while bundling in free voice minutes. Industry estimates peg Indian telcos’ data RPU at just about $3 right now, while it is multiple times more in countries like the United States, United Kingdom and Canada where data usage is far more.

Prashant Singhal, global telecommunications leader at EY, said the aggressive tariffs by RJio could be just a launch gambit for customer traction. “We will see how long this continues. Tariffs need to be sustainable, since the outgo on upcoming spectrum auctions will anyway strain telcos’ balance sheets further”. Indication enough that, eventually, RJio will have to raise tariffs to a more sustainable level?

The growth potential of India’s telecom market is already slowing. A few years back, the industry was adding up to 18 million subscribers per month, which then came down to 10-12 million a month and is now down to single digits. Market penetration is almost 75 percent, which means theoretically at least, three in four Indians already own a mobile phone. Of course, the actual number would be lower due to the habit of one subscriber owning multiple SIM cards, but the bottom line is that new subscriber addition will only slow down further in the future and telcos will have to fight for share of the market from the existing consumers. So sustainable tariff levels along with some market consolidation is the only way forward.

In any case, the tariffs announced for data by Ambani may actually be a little higher for the consumer. This story shows how.

For the base plan of Rs 149 valid for 28 days, a consumer will get 300 MB 4G data, free unlimited local/STD voice calls, free RJio app subscription worth Rs 1,250, free 100 local/STD SMS.  “So, if consumers tend to buy this plan, they will end up paying Rs 508 for 1 GB 4G data”, the article notes.  With Rs 499 pack, the article finds that the cost of 1 GB 4G data will be Rs 124.75. The cost reduces as usage goes up but still, the base plan is not as cheap as it looks at first glance.

Rajan Mathews of the Cellular Operators Association of India (COAI), the lobby group of incumbent telcos, said in a television chat today that though the tariffs of RJio are very aggressive, they don’t seem to be killer rates. “We are not expecting head to head adversarial pricing but clever offers (from incumbents) which will allow customers to mix and match plans,” he said. Already telcos such as Bharti are offering plans where voice minutes are free.

Direct confrontation on tariffs may not happen between the big daddies of Indian telecom and RJio, but a mini battle is already on over the issue of interconnection. RJio has been complaining about the incumbents’ reluctance to allow calls originating on its network to get connected on theirs. This effectively means if one makes a call from the RJio network to say, Airtel, the call may not get connected – leaving a rather poor impression about voice offerings on the RJio network.

Incumbents say since RJio is yet to launch commercially, they cannot be investing in capacities needed for interconnection till there is sustained traffic from RJio on their networks. At the AGM today, Ambani complained that as many as 5 crore calls from the RJio network could not get completed last week because of incumbent telcos’ non-cooperation. The issue is now with sector regulator TRAI and with the Department of Telecom. From Monday, when the RJio services get formally launched, will this problem be resolved is anybody’s guess. Incumbents insist they need to know from when the company will launch commercially so that they can then invest in adequate infrastructure to offer connectivity.

The aggressive data pricing of RJio will be a bonanza for consumers, but how long will the party last? Tariff increases at some point of time will happen as this is the only way to sustain India’s telecom industry which already operates on thin margins. The only permanent fallout may be a consolidation in the industry, with weaker telcos getting acquired or merged with those who own spectrum and stronger balance sheets. Watch this space.