In 2016, the Mukesh Ambani led Reliance Jio transformed the mobile phone landscape in India by reaching out to network starved remote areas with its 4G phones and services that were free of cost, as well as to cost-conscious urban markets. A few telecom operators could not match these services and fell by the side. Others had to merge to face the stiff competition. All in all, the mobile services game changed totally with the entry of Jio and is poised to change further. Because the company still has a lot up its sleeve.
By Nijhum Rudra
India, with the world’s second largest mobile user base, witnessed a massive disruption in the telecom sector in September 2016, when the Mukesh Ambani led Reliance Jio entered the market offering free 4G and voice calls. This service was free for six months and later, when Reliance decided to extend it, India’s telecom regulatory body TRAI blocked the move. Rivals Airtel, Vodafone, Idea and BSNL also started following Jio’s path with endless cheaper tariff packs for its users, ultimately leading the debt-ridden telecom sector into more debt.
Rajan S. Mathews, director general, Cellular Operators Association of India (COAI), highlights why Jio made such an impact on the telecom market. He says, “Even though smartphones have become synonymous with mobile phones, there has always been a latent demand for feature phones. Reliance Jio was smart to identify this need and disrupted the market with its 4G feature phones in January 2017. With its entry into the market in 2016, RJio quickly garnered popularity, with its free voice for lifetime and unlimited data plans, and stupendous connectivity even in areas where other networks aren’t present, including remote regions across the country. The JioPhone also boasted of features like the capability to be connected with television sets to watch shows in real-time using the Jio TV app. The phone also included some of the most popular instant messaging and social networking apps.”
Three years ago, the Indian mobile industry was going through the 4G revolution which initiated the Digital India concept and bridged the huge digital divide. Jio has been the catalyst for this trend, and the inflection point, as far as the growth of the Internet user base is concerned. Not only did it bring first-time users to the Internet but also led to massive growth in the consumption of data through its disruptive pricing and go-to-market strategy, Counterpoint Research reports state.
“Jio not only reduced the voice tariff plan but converted it to almost a free service. It also drastically reduced data tariff with various free data offers. To survive this change, the other operators also followed the same path and adopted the new post-Jio era rules, dropping their tariff plans also. The outcome of Jio’s entry affected the entire Indian telecom industry. The newer ecosystem-driven low-cost business model approach has led to the consolidation of telecom operators, from 14 in 2008 to six in 2018,” says Satyajit Sinha, research analyst, Counterpoint Research.
|What experts say|
|“The NDCP 2018 (National Digital Communications Policy), with its promised investment of US$ 100 billion in the telecom sector over the next five years, is expected to do away with a lot of issues impacting the debt-ridden sector.
Besides, a properly formulated RoW (Right of Way) policy can go a long way in solving this infrastructure issue. The RoW rules have still not been implemented in many parts of the country due to the dearth of clarity as well as the challenges in implementation. RoW will go a long way in curbing the delays in complex permission procedures put down by local authorities, mitigate non-uniformity in levies and gather necessary approvals from state departments. Furthermore, the state policy needs to be disseminated to all the line ministries in the state for implementation and adoption at all levels. The industry is working closely with the Department of Telecommunications and other stakeholders to achieve the Digital India vision of the prime minister.”
—Rajan S. Mathews, director general, COAI
|“Initially, the market trend indicated that most of the consumers are opting for Jio as a second SIM option, primarily for data usage. A portion of its share is also a result of users switching from other operators like Reliance Communications, Tata Docomo and Telenor. The aggressive tariff plans, along with strong word of mouth promotion from existing users, are helping Jio to acquire new users faster than other operators. From very early on, Jio dominated 4G connections, especially after the introduction of Jio LTE feature phones which will play a critical role in driving this growth and rope in hundreds of millions of 2G subscribers to the 4G network. Jio Phone was the market disruptor in 2018.”
—Satyajit Sinha, research analyst, Counterpoint Research
Jio’s entry hinders other operators
India is currently the world’s second largest telecommunications market with a subscriber base of around 1.16 billion as of March 2019, a drop from 1.18 billion in 2016, according to the Economic Times. The number of smartphone users, especially of Android devices, has escalated tremendously, which has made India the fourth largest app economy in the world. Back in September 2016, business tycoon Mukesh Ambani unleashed Reliance Jio, a move that some view as the biggest resurgence in India’s telecommunications market. It is also regarded as one of the biggest startup and greenfield ventures the world has seen, with investments of almost ₹ 1.5 trillion. The company’s revenue in the October-December 2018 quarter rose 15 per cent sequentially, taking its revenue market share to 29.2 per cent, shows regulatory data collated by analysts at Jefferies India Pvt Ltd (verified by TRAI) and reported in Mint.
Reliance’s entry into the telecom space was officially announced on December 27, 2015, which was the 83rd birth anniversary of the groups’s founder, Dhirubhai Ambani. The service was commercially launched on September 5, 2016, in the country. The launch offers included free 4G data, voice calls, and SMS for all its users in India. Reliance Jio Infocomm had alliances with eight major multinational carriers such as British Telecom, Deutsche Telecom, Millicom, MTS, Orange, Rogers, TeliaSonera and Tim. These partnerships enabled Jio to construct the largest 4G and LTE networks in India and around the world. A huge 250,000-kilometre network of fibre optic cables and 90,000 eco-friendly 4G towers was created to offer high-speed 4G in all the 22 telecom circles in India.
A couple of months post launch, after Jio’s popularity rose and it gained increasing traction among users, a report by Bloomberg Quint mentioned that the debt burden of India’s telecom sector increased by 20 per cent in the financial year 2016-17—from ₹ 3.02 trillion in the previous year to ₹ 3.6 trillion. The second largest network provider, Vodafone India, was the only company that managed to pay 22 per cent of its debt when its parent Vodafone Plc infused equity worth ₹ 477 billion to repay loans, claims ET. Even the RBI advised all the major Indian banks to closely monitor the bad loans of the telecom operators, asking them to take action if loans are not paid on time. Reports claim that the Indian banks are sitting on a toxic loan pile of at least ₹ 7 trillion, or 9 per cent of all bank credit.
The sticky debt scenario led Bharti Airtel to approach TRAI so that the regulatory body could stop Jio’s free schemes and services. Airtel was also worried because Jio’s free voice service would take away around 70 per cent of the industry’s revenues, and lead to uncontestable domination of the market by Reliance. However, after months of scrutiny, TRAI discovered Jio’s scheme to be legal and instead levied heavy fines on Idea, Vodafone and Airtel for thwarting the RIL subsidiary by not offering sufficient points of interconnect to its SIM users.
Debt is now one of the major issues in the telecom industry, and the debacle of the Anil Ambani led firm, Reliance Communications, is an example of this. Raising revenues through price changes will only account for a small percentage of the debts, but carry the risk of subscriber loss. However, looking for new opportunities for revenues such as over the top (OTT) content and IoT could address the problem to some extent.
Satyajit Sinha from Counterpoint Research states that operators are now coming up with various solutions to solve their debt issues. Let’s look at some of the options.
- Airtel Africa is raising US$ 1.25 billion from Warburg Pincus LLC, Temasek Holdings, Singapore Telecommunications Ltd and SoftBank Group Corp. to trim Airtel Africa’s debt of US$ 5 billion.
- Bharti Airtel has transferred 15 per cent of its stake in the firm to private equity firm Warburg Pincus for around US$ 350 million.
- Vodafone Idea Ltd has approved a ₹ 250 billion fund raising plan by way of a rights issue to existing eligible equity shareholders.
- At the end of 2018, Jio’s net debt was ₹ 1.12 trillion. However, in the first six months of 2019, Canada’s Brookfield Asset Management announced that it would invest ₹ 252.15 billion into Jio’s tower business, and proceeds from the investment will be used to repay certain existing financial liabilities of Reliance Jio.
A glimpse into Jio’s success story
Within just three years, Jio has given tough competition to India’s biggest telecom operator Bharti Airtel, which now holds the third position (subscriber wise) after the historic amalgamation of Vodafone and Idea. Over this period, a slew of well-known operators such as Tata Teleservices, Telenor, Aircel and RCom went bankrupt and were forced to shut down. Within one-and-a-half years, Jio earned a profit of ₹ 5.04 billion in the October-December quarter of 2018-19, while its biggest rival Airtel earned a profit of ₹ 3.06 billion.
Within just one month of launch in September 2016, Jio created a world record of getting 16 million subscribers. It had enrolled 100 million subscribers after 170 days and around 300 million by March 2018, while Airtel took 19 years to cross the ₹ 300 million benchmark, claims Times Now.
“Average data consumption per user per month has increased 10X post the arrival of Jio, and this has drastically changed the Internet usage behaviour of millions of Indians. However, the ARPU (average revenue per user) has been declining for all operators post Jio’s entry. Operators in such a scenario are looking for new revenue opportunities, which promise them recurring revenue from their mature user base. Partnering with content providers is a step in this direction,” adds Sinha from Counterpoint Research.
The most important factor is that Jio has set up a greenfield network, which provides higher speeds and more bandwidth, while the rest of the network providers have supposedly used customised 2G/3G infrastructure to offer 4G.
Jio’s new services
Jio GigaFiber: The much-awaited Jio GigaFiber, which has received a positive response from users, is all set to commence operations on September 5 this year across more than 1,600 towns. One of the biggest trump cards of Jio, it is currently in the beta stage and has received more than 15 million registrations.
As of now, more than 500,000 homes in India are connected by Jio, all of which can now get a 1GBps broadband connection, a landline, and Jio’s digital set-top box, backed by the Jio GigaFiber FTTH broadband service. The broadband service operates on a platform that uses FTTH connectivity and promises a fast Internet connection, but at competitive rates. Much like Reliance Jio’s phone services, Jio GigaFiber appears to be too good a deal to pass on.
To allow customers a preview of Jio GigaFiber, the company is now providing a free-of-cost offer—a single plan with a fixed FuP (fair usage policy) limit on it. For the first three months, Jio will offer this service free to select customers as an introductory offer. Customers will get a 100MBps connection with an FuP limit of 100GB. There is a catch, though—users can extend this 100GB FuP limit via a sachet recharge that adds 40GB extra data to every user on a daily basis. The plan will start from ₹ 700 and can go up to ₹ 10,000 (corporate plan) with the highest speed of up to 1Gbps. Additionally, the company intends to extend its wired landline network, along with Jio TV services, to customers via Jio GigaHub.
5G service: After its huge success in the 4G domain, Jio is expected to be the earliest operator to launch 5G services in the country since it has the network with the latest equipment. The IP-enabled network is best placed to launch 5G services in India. Major rival Bharti Airtel seems to have an outdated legacy network and hence, it requires more investment to upgrade it. While Vodafone and Idea are still struggling with merger issues and will probably need investors to pump funds into their network.
“The Indian government has planned to start 5G trials by mid-September 2019. Spectrum allocation in India is being done through the auction process, and the government is yet to auction the 3.3K-3.6K MHz bands. However, Jio will require fewer resources, mostly in the form of software upgrades to enable its 5G network. Other operators are still carrying the debt burden related to 4G capex; so any further investments in 5G will result in more problems. In India, 5G will pick up after 2021 when the ecosystem is mature, and 5G handset prices start to fall,” adds Sinha.
Jio VoWIFI: The operator is also expected to launch the voice over Wi-Fi service this year, which will further assist telecom operators to stay connected with their users even when the mobile data is not available. It has launched the service in some states, while further roll-outs in other states are still in progress.
Enterprise services: Jio’s entry into the telecom sector in 2016 has already led to consolidation, reducing a field of many players to just six. This year, the company is expected to disrupt the market for enterprise services. Jio is in talks with Cisco regarding a partnership for enterprise services. The services are expected to be launched by the end of 2019.
Most of the telcos are looking at the enterprise market because the retail consumer segment is getting saturated. Enterprise is also a more lucrative segment. One thing is certain—Jio’s entry will expand this market and the competition will heat up in this segment too. Airtel, Vodafone Idea and BSNL will be fighting a tough battle to retain market share.
The way ahead
Jio’s entry has so far impacted all the telcos, forcing mergers and also bankruptcy filings. For Vodafone Idea, it was the market share loss to Jio that led to weak numbers for the April-June 2019 quarter, which Airtel could hold on to, global ratings agency Fitch said in a note.
According to a PTI report, Airtel, which has now become the third biggest telco after Reliance Jio and Vodafone Idea, will show operating profit growth in India this year on improvements in average revenue per user (ARPU), easing competition and cost savings.
The report further added that Airtel’s operating profit grew 7 per cent during the April-June quarter of 2019 as compared to the three months ending in March 2019 on ARPU growth and more consumers shifting to the 4G network. Vodafone Idea’s revenue slipped 4 per cent and its operating profit was down 22 per cent during the same period, as it lost 14 million subscribers, the report said. In comparison, the report mentioned that Jio posted revenue growth of 44 per cent, and 37 per cent growth in operating profit.
“In the recent past, the country witnessed a series of consolidations in the telecom sector with operators either merging with bigger players or exiting the market altogether. As a result of this, several tower companies registered major revenue losses, arising out of the sloss of co-located tenants per tower per tower.
Inadequate investments in telecom infrastructure have often been cited as a key reason behind the increasing incidences of call drops and poor network connectivity. Though the TSPs (telecom service providers) over the years have invested ₹ 10.44 trillion to create a world class telecom infrastructure, a lot is yet to be done,” says Rajan S. Mathews of COAI.