Consolidation phase over, telecom firms set for growth war

Reliance Jio has forced incumbents to either match its offers or exit the market completely. Photo: Abhijit Bhatlekar/Mint

Reliance Jio has forced incumbents to either match its offers or exit the market completely. Photo: Abhijit Bhatlekar/Mint

New Delhi: In the past 18 months, Reliance Jio Infocomm Ltd has triggered a bloody consolidation in the telecom sector, forcing incumbents to either match Reliance Jio’s offers or exit the market completely.

Among the last ones to exit the market will be Aircel Ltd, which, according to a report in The Economic Times, plans to file for bankruptcy at the National Company Law Tribunal (NCLT).

Reliance Jio’s entry strategy has already worked for Mukesh Ambani, with the latest data made available by the telecom regulator showing that its market share has doubled to 13.71% by December end 2017, from 6.40% a year ago.

Trai’s latest order on tariff rules has given the green signal to Reliance Jio to continue with its promotional offers. But experts say Reliance Jio will now face strengthened competitors in Bharti Airtel Ltd and the Vodafone-Idea combine.

“Earlier, subscriber additions were equated with the success of the business. Now with consolidation almost over and with the three top players reaching a sizeable market share, the focus now must shift to retaining customers and how to ensure growth,” said Amresh Nandan, research director at Gartner.

Significantly, Airtel, Idea Cellular Ltd and Vodafone India have retained their respective market shares, which implies that Reliance Jio has grown partly at the cost of these smaller players and largely by grabbing a chunk of the new subscriber additions to the overall base.

As of 31 December 2017, Airtel had 24.85% of subscriber market share, Vodafone had 18.2%, Idea had 16.83% and Reliance Jio had 13.71%.

“Operators now cannot rely on selling packets of data to individual consumers and will need to focus on ‘solution sales’ for enterprise businesses, apart from looking at 5G use cases—smart city applications such as traffic management, waste management, apart from telemedicine, etc.,” said Rajan Mathews, director general of COAI.

With the advent of these new offerings, what could also work to Reliance Jio’s advantage is that it is the newest entrant in the sector.

“Networks that were earlier designed to offer primarily voice and data need to be transformed to offer these new products. To that extent, Reliance Jio, with a greenfield network, has an advantage over other operators who need to focus on cost effectiveness, put in investment in infrastructure and be willing to take a hit on Ebitda (earnings before interest, taxes, depreciation and amortization) in the short run to win the long-term battle,” Nandan said.

This advantage would, however, be short-lived, with incumbent operators such as Airtel looking to monetize their assets, while the Idea-Vodafone combine gets ready to benefit from cost synergies once the merger is completed. Bharti Airtel is already considering a potential initial public offering for its Africa unit.

“A new incumbent always has an edge. But how long can this advantage be sustained? It will quickly be replicated by incumbents. Airtel, Idea and Vodafone, they all are catching up very quickly in the 4G rollouts,” Mathews said.

What is, however, clear from the recent tariff changes in the past two months is that Reliance Jio will lead other operators in offering cheap tariffs. RIL chairman Mukesh Ambani said in February last year that Reliance Jio would monitor all publicly announced plans from all operators and not only match the highest selling tariffs but also provide 20% more data in each of these plans.

“Reliance Jio has 160 million subscribers today. Its internal target is 500 million. The price war will continue till Reliance Jio gets at least 35% market share. Also, with the latest Trai order on tariff assessment, the regulator has given a green signal to Reliance Jio to go ahead with its aggressive pricing,” a Mumbai-based analyst said on condition of anonymity.

Trai, in an order issued on 16 February, said there was no need to place restrictions on the number of promotional offers from telecom firms as long as they were transparent, non-predatory and non-discriminatory.

“We expect it (Reliance Jio) to continue with brutal pricing and incumbents to match it,” the analyst cited above said.

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