Jio cuts to grow

But the jury is out on its rock-bottom pricing for the broadband venture

Unlike the runaway success of its telecom services, Reliance Jio’s broadband venture has been underwhelming. A year after its commercial launch, the broadband business has less than a million subscribers, less than half of key rival Bharti Airtel’s 2.4 million connections. Seen in relation to the company’s ambitious target to enter 50 million homes and enterprises, the numbers appear even smaller.

But this week Jio decided to take action, announcing an aggressive unlimited broadband service with an entry price of ~399 with 30 mbps speed. The killer is not only the price; all the new packs offer unlimited usage, which is a new industry standard. Bundled offers with over-the-top (OTT) subscriptions are also virtually unmatched — ~999 for 11 channels (Amazon Prime, Disney Hotstar, Zee 5, Sony Liv, Alt Balaji, Voot amongst others but not Netflix). To include Netflix, and also get speeds of 300 mbps and all the other 11 OTT channels, the price tag is ~1,499.

The offers could force Airtel or BSNL to rethink their price strategies. Airtel, for instance, does not have an unlimited package and its entry-level pack is at ~799. For the past two years, Airtel has also reduced its bundled offerings, with Netflix and Hotstar no longer on offer in their plans. For BSNL, its lowest offering is at ~499 but with a cap on usage and lower speeds — and it has faced serious issues on reliability. A spokesperson of Airtel declined to comment on their moves.

This is an opportune time to drop prices. Sources in Jio say that the feedback from customers was clear — it needed to launch value-for-money packs especially if smaller cities had to be tapped. More so, when Jio fibre broadband had been rolled out in more than 1,600 cities compared to just 117 cities for Airtel.

With the Covid-19 pandemic and the consequent shift to work from home, the needs of online education and home entertainment have expanded exponentially, making it the right time to capitalise on the opportunity by introducing a value price.

A price drop may be one way of stoking growth in the fixed broadband market. Fixed broadband penetration is just 6 per cent (19 million households), one of Asia’s lowest. But Citibank estimates that the addressable market is around 72 million households (24 per cent of the total) at an average revenue per user (ARPU) of ~750. Yet the biggest competition for fixed broadband comes from 4G mobile data, which is offered at rock bottom prices with generous data plans and serves the needs of most consumers.

So will a fall in tariffs create the magic? Telecom analyst Mahesh Uppal does not think so. He says the impediment for expansion of Jio’s fixed broadband has nothing to do with price. “If the problem was about lower prices, Reliance would have brought it down from the very beginning, as it did in mobile services, which is a much larger market. Creating that physical infrastructure is a challenge because obtaining rights of way is difficult and time-consuming and mired in local regulations, and there is the presence of competing local cable operators,” he points out. To be sure, Jio has tried to fix the latter problem by partnering with some operators and buying up the bigger ones such as Hathway and Den Networks.

So Airtel might not have to worry about any serious churn to Jio. For the Sunil Mittal-promoted company, fixed broadband is just 3 per cent of its consolidated revenues and despite the launch of Jio a year ago, it has been able to maintain ARPUS of ~800. Also, with Airtel’s broadband customers limited to the top cities it might not even want to match Jio’s prices.

In fact, Jio’s initial plans were more or less in line with what Bharti Airtel used to offer (~699 for 100 GB). Analysts in Citibank believe a significant churn is not expected, considering this segment displays a high level of customer stickiness (unlike a mobile service, it is not that easy to shift because subscribers have to pay for a set-top box and broadband device) and that Airtel has ring-fenced them with its Xtreme offering (a DTH box comes with built-in Chromecast with access to 500-plus TV channels) and bundled packages. But new customer acquisition could be impacted with the lower tariff offerings — so Airtel might have to make some tariff adjustments.

Meanwhile, the arduous rollout of fibre has encouraged Bharti to make bets on DTH and, more recently, on low-orbit satellites to bring broadband to remote homes. On the other hand, Reliance Jio has bet purely on fibre, which, it argues, is a one-time investment and provides far better returns in the long run.

The jury is still out on which is a more effective way to reach homes. Bofa Global Research points out that replicating the mobile services model in broadband offers the prospect of monetising a large user base. Just as low tariffs brought in a large number of customers that could be monetised via digital ads, subscriptions and so on, Jio is betting on the uptake of gaming, edutech, health care along with its entertainment OTT channels on TV-JIO to get more eyeballs and thus more ad and subscription revenues. If that works, it would be a different business model altogether.