Reliance Jio debut may force telcos to alter revenue model

Reliance Jio Infocomm Ltd's (RJIL) pricing structure for its fourth generation (4G) long term evolution (LTE) voice and data services announced at its annual general meeting (AGM) on Thursday is threatening to push the already leveraged telecom sector into a deeper crisis if the price war gets stiffer.

A telecom expert, who did not want to be named, told dna that Jio's free voice and low data tariff plans will put pressure on other players to alter their revenue model to keep their subscribers from migrating to Jio's network.

"So, they (other operators) will have to change their revenue model by bundling voice and data into one plan. It does not mean, they will lose out on revenue if they give free voice service," he said.

Today, over 70% of incumbent telecom service providers' revenue comes from voice. With Jio's offer, they will have to aggressively go after data revenue and reduce their dependence on voice revenue.

Dharmesh Kant, head – retail research, Motilal Oswal Securities, said he was concerned about the Reliance Jio's timelines for 'operating break-even point in the context of tariff policy deployed'.

"To sum up, we expect, per share price of Reliance Industries to remain under pressure in near to medium term. Investor community will closely monitor the roll-out and effectiveness of Reliance Jio, in conjunction with plans by competitors to tackle new scenario," he said.

Tanu Sharma, associate director – large corporates, India Ratings & Research, expects a correction in the pricing of data services by incumbent players such as Bharti Airtel, Vodafone and Idea.

"Data tariffs are bound to see a major correction due to the disruptive launch of Reliance Jio Infocomm (RJio) while the benefits from higher data volumes, as well as subscriber growth will be back-ended. The existing top telcos (Bharti Airtel, Vodafone and Idea) have already undertaken pre-emptive price cuts by offering higher data volumes for similar pricing to retain their customers," he said.

According to him, there could be a redistribution of market share as Reliance Jio could look at disrupting some of the prominent geographies of existing operators.

He also felt that telecom operators' debt profile could further deteriorate in the current fiscal as they would incur high capex on network expansion and acquisition of additional spectrum to compete with Reliance Jio.

"RJio launch will accelerate 4G adoption in India helped by its attractive tariffs, low-cost handset pricing, perceived superior quality of services driven by its huge investment in the network," he said in a statement issued by India Rating.

Some experts have pegged the investment figure by telcos at around Rs 5 lakh crore over the next five years as they try to expand the current 150 million internet subscriber base in the country to over a billion users in the coming years.

Reliance has already created an internet-protocol (IP)-based network over 18,000 cities and town and two lakh villages. It expects to cover 90% of the population by middle on the next year.