Reliance Jio is disrupting the Indian telecom market with one move after another. When every one thought the dust of free services offered by the new 4G operator has settled, Jio dropped a bigger bomb, this time targeting the feature phone makers and the incumbent operators as well, at the same time. And by all means it is not going to be the last, the next step from Reliance Jio is rumored to be in Broadband services where it is expected to offer 3 months free service to begin with and at very cheap rates later.
The latest move, the launch of Jio Phone, aims at tapping the over 50 crore feature phone users, who are deprieved of data services that are being enjoyed by their smartphone counterparts. Not only that, with the launch the Jio Phone which is a 4G feature phone, Jio is also eyeing to snatch away a major chunk of 2G subscribers from the incumbent telcos.
Hence, it is not a move that any of the incumbent telcos – Airtel, Vodafone India and Idea Cellular – can take lightly. In fact, it has posed a condition of survival for these incumbents.
So, is this the end of the road for the incumbents? Or, is there any way out? In fact, there are many, and simple ones too.
Assess Your Strengths
There is no doubt that Reliance Industries (RIL), the parent company of Jio Infocomm, has deep pockets, matched by none in the industry, and the company has also shown intent of using this deep pocket for expansion of Jio in a big way. They have already invested more than Rs 2 lakh crores in this startup. So how does the rest of the industry cope with this onslaught before it bleeds to death or gets government support.
The biggest advantage that brands like Airtel and Vodafone have is their brand equity and reputation for quality of service in India and while that reputation has been damaged somewhat with increased call drops in recent past, they are still considered the best in the industry. Airtel, for example, has got one of the best networks. Global network testing firms like OpenSignal and Ookla have certified Airtel of having fastest 4G networks.
What helps them more is the fact that people associate Jio with Reliance Communication, another operator from the original Reliance family, which did not have a very good reputation for service quality. This fact is reflected in the number of mobile number portability (MNP) requests that the industry is getting which still hovers around only 5 to 6 million a month. Considering that Jio has added more than 100 million subscribers in past six months this number is fairly small.
A report by brokerage firm CLSA on the subscriber data released for May 2017 showed that 80% of Mukesh Ambani-owned Jio’s active subscriber additions came from smaller operators while the balance has come from Vodafone India and Idea Cellular, the country’s second and third largest telcos.
Given this back ground Airtel and Vodafone-Idea have great chance of fight this battle with Jio, but requires them to be more proactive rather than reactive to Jio’s strategies, and also make their services as well as operations simpler.
All the incumbent operators have 2G, 3G and 4G networks. This hampers operational efficiency and also leads to under utilisation of each of these networks and related spectrum. And therefore they need to migrate to 4G only network. The future is only 4G or beyond, but never backwards. This will not only be more efficient but also more economical as 4G networks only have one IP network for both voice and data unlike 2G and 3G that have two distinct network for voice and data.
For that to happen they will also need to launch feature phone with VoLTE capablity, just like what Jio has done. They have to offer better feature phone than what Jio is offeering and for that there is whole ecosystem and they need not create their own. Even for value added services like Video or Music, they can tie-up with existing players rather than investing on their own.
And this is not going to be tough for them either, even they can introduce same 0 price with security deposits for handset. Deposit cost will fund the handset right now and we also need to remember that the Rs 153 per month plan that Reliance Jio is offering is 1.5 times that of what these telcos have been earning from their rural customers on average.
They should also help handset vendors to launch multiple feature phone and should offer some additional benefits to the customers buying those phones (which they have been doing for smartphone vendors) as this will help users migrate to 4G network faster.
As far as upgrading the network is concerned it is not going to be a major challenge for them and they have to do this in any case, the sooner the better.
“Telecom Operators have started to modernize their networks with Multi Standard Radio, to be able to migrate to higher technologies like 4G with just a software upgrade,” Nitin Bansal, Country Manager – India, Ericsson told TeleAnalysis when asked about the migration path to 4G.
“This allows operators to run existing 2G, 3G technology till there is a demand and capacity need to lay LTE in the same band. Additionally , the Radio Access Network software functionality enables operators to do the load balancing by prioritizing 4G subscribers on LTE bands and handle the load distribution accordingly. This in turn helps in maintaining user experience with gradual migration to the spectral efficient LTE band,” he added.
Besides, these incumbent telcos have plenty of spectrum now that they have gained organically as well as via the M&A route. Also, with better technology like 4G spectrum utilisation will also improve, cost of managing the network will reduce. Incumbents should use this as an opportunity.
One of the other good things about Reliance Jio is its tariff structure. And because of that the operator is not going to loose money on services even if it offers unlimited data. Why? Because all their plans are priced above what was the average revenue per user (ARPU) for incumbent telcos. Jio’s ARPU is Rs 300 (Be it Rs 309 plan or Rs 303 plan for prepaid as well post paid users) where ass the industry ARPU is around 150. But what Jio has done is it has taken away the bill shock factor away from billing. More over plans are simple to understand and there are few of them. Choice is good, confusing choices are terrible. This is what all telcos need to understand. Offer clear and simple choices with no surprises.
One of the important thing incumbent telcos need to understand is that most battles are based on perception. While all telcos are offering similar plans existing telcos are seen as costlier, because there are plans that are costlier in their bouquet along with cheaper plans, which gets overlooked or which confuses the customer. We did a story on that sometime back which you can refer to here.
What simple tariffs will also do is bring down the cost involved in customer education while taking away the confusions.
Stop Milking (fleecing) Your Customers Till You Can
Before Reliance Jio introduced JioPhone, operators did not touch the 2G and 3G rates, Why? Because they thought Jio can’t challenge them in this space and customers are not going to move away as device pricing is a barrier, so we don’t need to change. Mukesh Ambani had rightly said during RIL’s 40th AGM that 2G users are still paying Rs 1.5 per call or SMS. And if the use data as much as a smartphone user at the prevailing rates, they may end up paying Rs 4000 to Rs 5000. But then Jio comes out with a device which is not cheap (its Rs 1500 as in three years most phone will not be in working condition or will be lost and what not), service is not cheap either, as explained earlier in the story, Reliance Jio will make 1.5 times more money per user compared what other telcos are making from their feature phone users.
One More Thing..
Reliance Jio is going to launch broadband services shortly. If other players in the space want not to give Reliance Jio a free hand and get surprised overnight, they need to get their acts together. They should plan and offer what best they can to gain and retain customers when the actual announcement from Jio happens. From what we know, Reliance Jio will offer 3 months unlimited service but users will have to pay Rs 4500 initially (may be a deposit). So, the ground is not lost for the incumbent telcos. But they need to behave like a leader, as they had done in the past, and not wait for what Jio does, and then follow it. The rule is simple -disrupt before you are disrupted!