Portfolio

It’s time to say hello to Reliance Jio

K Venkatasubramanian | Updated on November 27, 2017

Pool play The going’s not going to be easy for the new player ISAART/SHUTTERSTOCK.COM

RJio has the financial muscle, but it may take a while before it overtakes its competitors and emerges as a key player



The prospect of the Big Boy of oil and gas, Reliance Industries, muscling its way into the telecom sector has been watched with much interest in recent years.

So, will the entry of Mukesh Ambani’s Reliance Jio Infocomm (RJio) into the fray force the top players to rethink their strategies?

Not necessarily.

It has been nearly four years since the company first successfully bid for and won spectrum for offering data services on a pan-India basis. But the venture has not commenced active operations yet.

In the meantime, entrenched players in the market have emerged much stronger and have enhanced their revenue share. Even in the broadband space, BSNL, Airtel, RCom, Idea and Vodafone have very strong presence. These operators together command nearly 85 per cent market share.

In wireless mode

In the spectrum auction this February, RJio bid for spectrum to offer voice services in 14 circles.

It also signed tower-sharing agreements with several players. But even after these moves, what its bouquet of offerings will be is unclear.

It now appears that RJio would not just be a data services provider but would offer a combination of broadband (wireless) and voice services. Recent data from the telecom regulator indicate that nearly 92.5 per cent of all internet consumption in India takes place through the mobile wireless mode.

This means that RJio will first have to look at adding a substantial number of mobile subscribers first before getting them hooked to its data and internet plans.

In the mobile services space the top three operators have a 70 per cent revenue market share.

Other prominent players such as RCom, Tata Teleservices, BSNL and Aircel too would compete for subscriber and revenue share. So, RJio’s task is certainly not going to be easy.

One differentiated strategy could be that, given that the metros and top cities are already saturated, it will set its sights on smaller cities.

A recent report from the telecom regulator shows that while urban teledensity is 139.7 per cent, the figure for rural areas is just 43.7 per cent. So there is an undertapped market to target for RJio.

Not for tariff war

Then, there are reports that it may offer 4G LTE (long-term evolution) services, where speeds are likely to be faster than even 3G offerings.

But handset compatibility would need to be worked out and smartphones need to be configured to work with 4G technology.

The company has invested an estimated $8-10 billion thus far in capex and spectrum charges; so it is unlikely to start a tariff war as a new entrant. It would know from the experience of new entrants in the last few years that playing the tariff war against seasoned incumbent players is a sure way to lose money.

While over time RJio may emerge as a strong fifth or sixth player in the telecom market, trying to race to the top through tariffs would surely mean a race to the bottom.

The industry itself simply cannot afford any more tariff wars, as evidenced by the kind of erosion in margins and realisations of operators that it led to during 2009-12.

Looking for clarity

More clues may emerge if it decides to bid for spectrum in the auction slated for early 2015.

Of course, if the company does take the inorganic route to expansion, possibly acquiring the weaker operators, it would certainly stand a good chance.

Maybe that’s one thing the smaller players in the telecom space could look forward to.

Published on August 17, 2014

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

null
This article is closed for comments.
Please Email the Editor