Many challenges lie ahead for Reliance Jio

The commencement of commercial operations of Reliance Jio has once again been put off to December this year. This hesitation, six years after it first bid for spectrum in early 2010, reflects the difficulty the company faces in making a foray into a mature market.

There are expectations that the newest entrant to the telecom space, with the financial muscle of its parent company, would offer stiff competition to the incumbent players with ‘disruptive’ offerings. But these perceptions may be a tad overdone. While Reliance Jio may emerge as a reasonably strong player, it is likely to face quite a few challenges in expanding its footprint.

Now, Reliance Jio has licences to offer both voice and data services, though it is widely expected that its focus would be on the latter.

Urban penetration is more than 140 per cent, according to a report from the telecom regulator, while rural tele-density is less than 50 per cent. While it can look to tap the rural market, tariff rates need to be tempered given the price-sensitive nature of these service areas.

In any case, even in urban centres, there is limited scope for fighting competition on tariffs as it is a sure race to the bottom as several of the new entrants realised to their detriment in the hyper competition period of 2008-12.

The company has invested about $10 billion so far for spectrum and capex to roll out its services. So, there is a fair bit of debt to service, which is an added reason not to offer margin-eroding tariffs.

Also, Reliance Jio has indicated that it would take three more years to achieve 100 per cent network coverage. That still gives a lot of time for the likes of Bharti Airtel, Idea Cellular and Vodafone, apart from regionally strong players such as Reliance Communications, Tata Teleservices and Aircel to strengthen their footprint.

The revenue market share among telecom operators has become extremely skewed towards the top three in the last few years. Bharti Airtel, Idea Cellular and Vodafone control nearly 75 per cent of the revenue market share among telecom players. As many as six to seven players vie for the rest of the pie. To make a dent is clearly quite a challenge.

Reliance Jio does have the last mile connectivity mostly tied-up, with the signing of tower-sharing deals with large players such as Indus Towers and Viom Networks. This would ensure considerable reach.

Launching 4G services, which offer faster data rates compared to other offerings, also means that the use of spectrum is also reportedly quite efficient. Thus, Reliance Jio may be able to pack in more subscribers for a given quantum of spectrum compared to other technologies.

Given its focus on data, Reliance Jio is targeting the right segment, since even the top operators generate 15-20 per cent revenues from data services which has more than doubled in the last 2-3 years.

But even in 4G, there is likely to be competition given that Bharti Airtel launched services is several cities. Others may follow soon. While Reliance Jio has promised to offer 4G compatible handsets at less than ₹4,000 and a whole bouquet of services for ₹300-500, how these are implemented remains to be seen.

Over time, it may still emerge as a strong fifth player in the Indian telecom market.

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