Business

The Fourplay

Can 4G Reliance Jio change the game again in telecom sector?

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The Fourplay
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What You’ll See When You Talk

?Then Now

  • In 2003, the then Reliance Infocomm launched the Rs 501 monsoon offer with a free bundled phone at a time when call rates were high and handsets were expensive. Other offers had similar low-cost plans.
  • The company also launched a scheme where STD calls (Reliance to Reliance) were offered at just 40 paise, a rate many companies don’t offer even today
  • Reliance also offered the concept of limited mobility for their phones, a concept that led to a debate and the famous WLL controversy later
 
  • Reliance Jio is preparing to launch very high-speed data, voice and video services with content thrown in
  • Jio is certain to unleash a price war and is also working with vendors to either subsidise or offer free bundled devices with its services
  • Jio to set up WiFi hotspots across the country to allow people access to its data services from anywhere, bringing in a concept of mobility in data services
  • It has invested Rs 70,000 crore, created huge infrastructure through fiber, towers and undersea linkages

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In 2003, pre-partition Reliance Infocomm launched with immense preparation its offers bundled with free phones, which took other telecom operators by surprise. Cornered, the competition approached the courts on a technology issue, otherwise known as GSM vs CDMA. A long battle ensued. Airtel promoter Sunil Mittal later said this was one of the most difficult periods for the industry. Well, come December ’15, Muk­esh Ambani’s Reliance Jio is going to launch another digital telecom offering. After spending five years and Rs 70,000 crore, it plans to change the rules of the game again. But the world’s changed—can Jio swing the game again?

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There’s a cloak of secrecy around it all, but this much is known. Jio will offer int­ernet data, and high-definition voice on fixed line as well as VoIP. It will also launch nationwide WiFi services across cities. The company has already launched its instant messenger app, ‘Jio Chat’, on mobiles. It’s scheduled to start data trials this month while a beta testing of full services will begin in August.

Reli­a­nce Jio has pan-India 4G spectrum and has already laid 2.5 lakh km of fiber apart from tie-ups with other players for international linkages and mobile towers acr­oss the nation. In short, Jio now has the infrastructure that matches or is bet­ter than the big players. Add to that the political clout Ambani has that opens doors in even the most difficult areas. Surely, a formidable challenger.

Across telecom companies, there is an uneasy disquiet in anticipation of disru­pted services in a market that is fragmen­ted and characterised by low returns. The worry also stems from the fact that most of them, after a rather expensive spectrum auction, are sitting on big debts and unable to invest further in expansion to match their big adversary.

Piyush Jain, analyst with Mor­ningstar, says, “The industry is fragmen­ted. Jio must carve out a dou­­ble-digit marketshare quickly—its advantage is that with good balancesheet strength, it can handle losses for many quarters.”

While it plans to launch content servi­ces as well (it’s already made media acq­uisitions in this regard), pure high- speed data will be Jio’s mainstay across the cou­ntry at various points of delivery, inc­luding wired, wireless and WiFi bro­adband. Data consumption in India is growing rapidly on a quarter-to-quarter basis, not just in the top 10 cities but also in tier 2 and 3 ones. Also, only 15-20 million of India’s 90 million net users use fixed lines. The rest use mobile broad­band and that number is rising. This will help Jio create a churn in the market.

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“Reliance Jio is a big player, so the oth­ers will be worried,” says Romal She­tty, partner and head of telecom with kpmg India. “Also, they have an advantage with 4G while others are mostly on 3G where spectrum is more or less cho­ked,” he adds. Moreover, Jio will be entering the market with fresh new fiber and a new network reaching many new destinations at a time when optical fiber capacity utilisation in India is about 60 per cent, creating a fight for capacity.

Apart from this, say Jio officials, the company will also launch WiFi hotspots across the country, an area not explored by existing telecom players. If this succeeds, many of the present players are likely to take a big hit in their data-using subscribers. But what most players are afraid of is a price war. Going by the saturated nature of the market in the metros and big cities, a price war and bundled offers from Jio is a certainty. “One of the things that Reliance Jio will have to bring to the table is a cheaper product. There is no way you can enter the market with so many incumbents if you are not price- competitive,” says telecom expert Mah­esh Uppal. He warns of an aggressive strategy that will put pressure on smaller players to “shape up or ship out”.

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But before all that, the big question is: can Jio pull it off? Most experts agree that things have changed since ’03 when there was an unmet demand and Reliance was offering a cheaper product. Now the market is saturated and Jio will have to whisk subscribers from other players. Lloyd Mathias, marketing head at HP, says, “The market has matured. It’s not about customer acquisition anymore, moving from one service to another. The play will be in customer value and what they can get from a particular service.”

But there’s a problem here—most of Jio’s spectrum is in the 2300 band which has problems in penetrating building walls. It has much less spectrum in the 800 band which is good at this. The company has already made a humongous investment and needs to justify that thr­ough tariffs. If it goes for a price war, it has to subsidise services and devices, which will push overall costs further up.

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Obviously, on the face of it, telecom companies admit no fears and say Jio will have a tough time carving out marketshare from established players. However, most telcos are preparing a war chest of funds and readying low-cost initiatives to stave off the onslaught later this year. Says a telecom company official, “A price war is the biggest attack Jio can mount to stay afloat in this market. Most of the players are prepared to match every offer Jio makes on the price front. The action will begin before they hit the ground.”

Also, mounting a broadband wireless project across 5,000 towns is a task that is daunting even for Reliance which is known for its execution of large proje­cts. In a project that has a strong con­sumer interface, the company’s tra­d­itional, cen­trally controlled, topdown approach might not be the best tack.

What is also important is the fact that since the demerger of the group in 2005, none of ril’s initiatives—retail, life sciences, petrol pumps, sezs or defence—have been big successes. While telecom has been one of his “favourite” areas, Ambani comes in at a time when things are difficult and the sector is mostly bleeding. Jio comes with a lot of promises and the entire world is watching. Make no mistake, this is Mukesh Ambani’s big test.

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