Other telcos take a beating on D-Street
4G LIGHTNING 2003 Monsoon Hungama led to tariff war; today, data is the focus
It was a flat day for stock markets on Thursday but telecom companies took a beating, with a 6-10% dip in share value wiping off more than `13,000 crore of their market cap, after Reliance Industries unwrapped its much-awaited Jio mobile network.
Idea Cellular shares plunged 10.50% to `83.70, Anil Ambani’s Reliance Communications tumbled 8.8% to `49.15 and Bharti Airtel’s slipped 6.4% to `310.70.
“Prima facie Reliance Jio’s pricing is not just highly competitive but also challenges prevalent tariff structures as Jio will offer free voice calling and SMS services bundled with the data tariff,” said Tanu Sharma, associate director, India Ratings and Research.
“This could hurt voice tariffs and average revenue per user of existing operators as well as push them to match the pricing, in a bid to protect their market share.”
Earlier this week, Airtel announced a significant cut in its prepaid data tariff in a move widely attributed to Jio’s anticipated entry.
Crisil expects EBITDA (earnings before interest, taxes, depreciation and amortisation) margins in the telecom industry to drop 250-300 basis points in 2016-17 and remain under pressure in the next fiscal as well.
“Reliance Jio’s price aggression is expected to exacerbate pressure on both revenue growth and profitability of existing operators,” the rating firm said.
Reliance Jio’s muchanticipated launch on Thursday offering free voice calls and data services at very low tariffs resembles a similar “disruptive” strategy that the company had adopted 13 years ago.
In 2003, Mukesh Ambani-controlled Reliance India Mobile stormed the market with a “Monsoon Hungama” scheme, which offered mobile connection and a handset at ₹501.
As incumbent operators jostled to keep their customer base intact, tariffs plunged, making mobile phones affordable for millions and breaking down class barriers.
From about ₹5 then, a call now costs as low as 45 paise per minute despite intervening years of inflation and growth that makes the rupee go less far.
With voice calls no longer expected to remain the dominant money spinner, a similar tariff war looks imminent on data services as browsing battles move to palmtops (handheld devices).
Reliance Jio has placed its bets firmly on low tariffs to push data volumes, which is evident from the strategy of making calls free. The move will force incumbents to lower rates.
“We foresee operators gradually moving towards simpler allyou-can-eat plans wherein subscribers would be offered unlimited voice and fixed data access for a lumpsum amount, rather than the forest of foggy options available today, ”said Ajay Srinivasan, director at Crisil Research. “Tariffs will tumble, and we project average data realisations halving to less than ₹0.10 per MB (megabytes) by 2017-18, compared to less than ₹0.20 per MB currently.”
In 2003 when Reliance entered the market, it was dominated by a few incumbent players, including Airtel, which commanded a significant share of the voice telephony business.
The conditions are different this time round.
The data sector is still very much in its infancy and remains a fledgling line of business for operators.
This will make it easier for incumbents to adjust their data tariffs to match Reliance Jio’s offer.
“The Indian telecom sector is at an inflection point of massive data adoption, repeating the precedence of the voice market growth trajectory (2007-2011),” said Tanu Sharma, associate director, large corporates, India Ratings. “This will necessitate continued investment in the key resource—spectrum—during the coverage expansion phase.
“Competition has to gear up. Operators have to make increased investment both in terms of coverage and quality,” Rajan Mathews, director-general, Cellular Operators Association of India (COAI), told HT.