Reliance Jio Launch

Three things we need to remember about telecom disruption…

If there was one underlying theme in Mukesh Ambani’s speech at the 42nd AGM, it was disruption in telecom. The telecom industry is likely to change substantially from here on. Data prices will be slashed and voice and messaging will become virtually, if not entirely, free. Telecom will not be a standalone service any longer but will be embedded with the hardware. This could be the Apple moment for Reliance Group. Lastly, on-boarding is likely to become quicker and simpler through e-KYC based on Aadhar. This will lead to a quick broadening of the all-India subscription base. However, those who are singing the disruption tune need to remember 3 key things…

Will voice actually be free?

 This is a little more complicated than it appears. For example if you are calling from a Reliance phone to another Reliance phone, then technically it can be totally free. But if your call terminates on another network or utilizes another mobile operator’s network then there are inter-connection charges that will be billed to Reliance. These will obviously be passed on to the customer and therefore voice will not be free in the strict sense of the term.

Customer migration is tough…

 With over 900 million customers and over 65 million broadband users, the low hanging fruit for Reliance Jio will be the existing subscriber base of competition. But that is not going to be all that straightforward. Most of the existing players have a large share of corporate customers. Such customers do not migrate from established network relations unless the reason is really compelling. The big 3 players in India viz. Vodafone, Bharti and Idea, only need to adapt pricing to make it hard for subscribers to migrate. With a huge client base, they have the flexibility to adapt pricing quickly. After all, the Telecom Big-3 players have fairly deep pockets too.

It is about profits, stupid…

At the end of the day it will be about making profits. Currently, the telecom industry is reeling under a debt of Rs.380,000 crore and wafer-thin margins. If prices go below a point, it may make sense for the existing players to just let Reliance Jio acquire more of their customers. After all, the more customers you acquire, the more you service and the more money you lose. Reliance has taken a big gambit on telecom because it believes that the IRR of directing its profits on oil into telecom will pay off in the long run. But, if shareholders realize that the money generated by oil is going into an endless pit, they may not be too pleased. The price war may be the most interesting to watch. A lot will depend on how Jio can disrupt the Indian telecom industry without disrupting its own financials! ©

2 responses

  1. is reliance try to play some gimmick.. after all it is a corporate company that is meant to make profit for the owners, if they are trying to outsmart the rivals by giving services for free then how come they earn something from an industry. so i think these are all some kind of strategy to canvas subscribers from other networks to their own and later on skews them to hay as the public won’t be having much choices rather to remain with jio….. so fellas act smart and don’t fall to intuitions or words from a real corporate.

    Like

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