'Airtel can fight Rel Jio; Idea, Vodafone may struggle'

The fear of telecom incumbents over the entry of Reliance Jio Infocomm Ltd (RJIL) is not unfounded.

An analyst with a leading consultancy firm, who spoke on condition of anonymity as he did not want to be seen taking side of either party, said case studies of seven markets over the last 10 years revealed that whenever a "radically new disrupter" came in it has almost always led to two things: first, crash in voice service prices as consumers make a shift to higher data usage and second, demise of weaker players.

"These two outcomes are universal across all markets we have studied," he said.

In India's case, Reliance Jio is the radically new disrupter with the launch of its fourth generation (4G) long term evolution (LTE) data and voice services. Its aggressive pricing of data and free voice calls have already sparked a tariff war in the market.

The analyst said it was generally seen that the largest player, which can be taken as Bharti Airtel in India, had the "financial wherewithal" to survive while smaller players like Idea found it hard to withstand the lethal attack from the new player.

"We have seen that number one player (read Bharti Airtel) doesn't seem to suffer much because it has the financial wherewithal to invest and compete on equal footing (with the new player) but weaker players like Idea would probably be impacted adversely. It is because they do not have the wherewithal and their customer profile is actually the prime target of the new entrant," said the analyst.

He said incumbents may find it challenging to ward off competition because they will have to increase investments and capex at a time when their revenues would come under pressure due to the price war.

"Idea is particularly very vulnerable. Vodafone is an interesting proposition as they have access to their (UK) parent's resources but it is not clear whether the parent wants to invest in India given that they have seen no return so far," he said.

According to him, India was slightly different from other markets due to the immense strength of Reliance Jio and an under-developed ecosystem for LTE handsets.

"The challenge in India is on two counts: One which is negative for incumbent telecom operator and the other which is positive for them," he said.

The telecom expert said the bad news for old telecom players was that nowhere in the world was the new entrant so "well-endowed in terms of capital and network reach from day one".

"So, obviously the impact (of the new player) will be felt much more in India," he said.

What was positive for the incumbents, he said, was that India's ecosystem for 4G LTE was still evolving. This, he said, may not allow Reliance Jio to scale up as swiftly as it may want to and offer time to existing players to catch up with it on the technology front.

"The positive for the incumbent is that the ecosystem, which Jio is asking, is very different from ecosystem which exists today. So, its impact will be very limited. Right now, not more than 5-7% subscribers have LTE-enabled handsets and those subscribers are at the top-end of the spectrum who would not be swayed by free the voice offer," he said.

However, over the long term, he expects the impact to be very clear because all new smartphones will be LTE-enabled; "but in the short run, Jio will be struggling to expand the handset ecosystem which is the reason why they are making the offer free".

G Krishna Kumar, Bangalore-based telecom executive, believes India will continue to be a second generation (2G) driven market for foreseeable future.

"Only countries like Japan and Korea have stopped 2G completely. Other countries like the UK, Singapore and US are planning to shut down 2G over the next few years," he said.

Krishna Kumar feels Reliance Jio's foray will lead to another round of consolidation; "from 10-12 operators per circle, it is 7-8 operators now (thanks to the relaxed spectrum sharing and trading rules), and this will further reduce to 4-5 operators soon".