Indian Telcom Operator tensed Over Voice Tariff war with Reliance Jio 4G Service

Telecom companies await the commercial launch of 4G services by Mukesh Ambani led Reliance Jio Infocomm with trepidation, worried it will unleash another painful voice call tariff war in an industry already gripped by strong rivalries. "They have big money and bigger ambitions— that's a fearful combination," said a top executive at a leading mobile phone operator. "Among the biggest disruptions, Jio could simply give free voice services and charge only for data, as theirs is a data play." Jio will offer data and voice services at half or less than half the current rates at Rs. 300500 a month, Ambani said in June at the annual general meeting of parent Reliance Industries Ltd (RIL). Last week, he announced an investment of Rs. 2.5 lakh crore as part of plans that include expansion of wireless broadband infrastructure and manufacture of mobile handsets at launch of Prime Minister Narendra Modi's Digital India initiative to widen access and put governance online.
 
That could hurt incumbent operators still bearing scars of a price battle at the turn of the decade. On top of this, starting July 1, customers can change providers while retaining numbers. Even though voice call charges are among the lowest in the world, this segment still contributes more than 80 per cent to the total profit of phone companies. That means lower rates will need to be matched. "Jio needs to drive traffic up on its networks; its network will be completely empty. We will have no choice but to see how we can match it," said the executive cited above.

ET spoke to a range of top ranking executives at Bharti, Idea Cellular and Vodafone India —the country's top three phone companies in that order— on their likely response to the Jio launch, expected in December. The three hold more than 70 per cent of the telecom market. None of the people wanted to be identified. Bharti Airtel and Idea Cellular didn't respond to queries seeking comment.

Vodafone India declined to comment. In an emailed response, Jio said it can't disclose details regarding tariffs, bundling and likely deals due to "commercial confidentiality."

The Reliance unit could bundle devices with services but that's not seen as a likely strategy. In its initial entry in 2003, Reliance is estimated to have burnt through more than $1 billion offering talk time bundled with devices, said the executive cited above. "But they have been known to surprise and have deep pockets. They will be prepared to burn cash.It is only a matter of how much," he said.

Rajan Mathews, director general of the Cellular Operators Association of India (COAI), hoped for rational pricing by Jio that would broaden the data market. COAI represents GSM phone companies such as Airtel, Vodafone and Idea besides Jio. But in a recent report, brokerage Jefferies warned that the entry of Jio would make the environment more harsh, especially on the data side, which is expected to drive sector growth. It pointed out that the industry has "a disproportionately high number of operators at seveneight  in each circle," which doesn't allow telcos to raise prices.

"The companies most at risk are Bharti and Vodafone, which have the largest proportion of highwallet customers in Metros and Circle A, while Idea's growth prospects could be affected due to lower data presence," the brokerage said.

Credit Suisse said the last time new competition came into the market, in FY10, Bharti's earnings before interest, taxes, depreciation, and amortization (EBITDA) stayed flat for three years before recovering in FY14."RJio's launch network will be three times of 200910 in terms of capacity addition to the industry," Credit Suisse said. "In this context, we believe that current consensus expectations of continued strong EBITDA growth (a 1015 per cent threeyear CAGR) and low capex (capex/sales sub15per cent) are at risk." CAGR is compounded annual growth rate.

An executive at a top carrier backed this view. "Jio's agenda will simply be to catch attention. We don't expect them to take rational business decisions of slowly ramping their business up. We expect a return of the 2009 kind of war which saw the industry bleed," he said.

There's a broad expectation that the Indian telecom market, which saw rational pricing and stability being restored to an extent in the last two years, is set to see value erosion in near future. "We expect the onslaught to last about three to four quarters, or a year at most," said a third executive, adding that Jio would already have spent more than Rs. 1 lakh crore. "It is going to be like the release of a movie which makes money on the first weekend of its release. After that it will have to plateau, they have to answer to their
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