Ahead of the commercial launch of Reliance Industries Ltd’s telecom venture Jio on September 5, the market was rife with expectations of the company denting the subscriber share of the existing telecom players on the back of disruptive tariffs once it rolls out its services. While Jio did grab the headlines with the free voice, data and content services it offered as part of its promotional deal, it did not have the expected impact on the subscriber base of existing operators during the first month of its commercial launch.
Even as Jio said it added 16 million subscribers to its network in September, the incumbents maintained their steady subscriber growth during the month with Bharti Airtel adding 2.43 million users, Idea Cellular adding 1.91 million users, and Vodafone India adding 5,25,279 users, according to data provided by the Cellular Operators Association of India (COAI).
These additions are consistent with the subscriber growth numbers in months prior to Jio’s launch. In six months preceding roll out of Jio’s commercial services, Bharti Airtel’s subscriber growth was in the range of 0.70 million to 2.55 million, Vodafone India’s growth was in the range of 46,660 to 1.20 million, and Idea Cellular’s was in the range of 0.26 million to 0.86 million. In the month of April, Idea Cellular reported a net subscriber loss of 0.39 million.
Analysts believe that even though Reliance Jio fired an important salvo by providing free services, lack of clarity on the quality of its services could have prevented customers from trying out the new entrant. A research report published by Hong Kong-based brokerage firm CLSA said that during September, Reliance Jio’s 4G speed averaged at 7.2 mbps, compared with Bharti Airtel’s 11.5 mbps, Vodafone India’s 9.1 mbps, and Idea Cellular’s 7.6 mbps.
“In the telecom business, incumbency is a major advantage. It’s very difficult to dislodge the incumbents. Secondly, the reports from the market about Jio are not uniformly great. While some people have access to good cheap data, experience of others is not so good. Also, consumers have a degree of inertia when it comes to changing operators. In the absence of unambiguous market data, people seem to be reluctant to abandon incumbents,” said Mahesh Uppal, director of consultancy firm ComFirst, adding that this also showed not all customers are attracted by lower prices.
Even the available data for mobile number portability shows a lukewarm interest from consumers in culling the existing relationship with their service providers to commit to the new entrant. According to a letter sent to the Telecom Regulatory Authority of India’s Chairman RS Sharma by Reliance Jio on September 14, within the first two weeks of the company’s commercial launch only 201 porting requests were made to other operators. This is apart from the employees of Reliance Industries, who were asked to switch their official connections to Jio. Of the aforementioned 201 requests, 83 were made to Bharti Airtel, 56 to Vodafone India, and 62 to Idea Cellular. Furthermore, Reliance Jio’s free services, according to sector analysts, are attracting more data consumers than voice consumers, which the incumbents consider to be their forte. “Voice consumers are primarily differentiated from data consumers with the kind of handsets that are used. Pure play voice users tend to be users of low-end feature phones, which are sold in high-volumes in rural areas of the country, as opposed to the 4G-enabled smartphones that find demand in urban markets,” a senior research analyst with a domestic brokerage firm said.
This is also reflected by the subscriber additions in tier-II and -III circles. Some of the highest additions of Bharti Airtel during September happened in circles of Uttar Pradesh (East), Bihar and Rajasthan, among others. For Idea Cellular, apart from Maharashtra, which is a category A circle, high subscriber additions were witnessed in Madhya Pradesh and Uttar Pradesh (West) circles. Similarly, for Vodafone India, several Category B circles such as Uttar Pradesh (East), Uttar Pradesh (West), Rajasthan, and West Bengal saw high user additions.
Notwithstanding the upper hand incumbents had in terms of the huge existing subscriber base vis-a-vis Reliance Jio, which is beginning to build its own, the operators responded to the new entrant’s introductory offer by rolling out a slew of benefits on voice, data and content services. This was seen by the market as the incumbents’ way to protect their market share. “The incumbents also have done as they were expected to, and have tried to not be beaten hollow on price by responding as any incumbent would to a price-cutting competitor. And hence while they have not lost significant market share, they have lost revenue as recent results show,” Uppal said.
While these freebies have resulted in operators maintaining growth in subscriber additions, their results for the July-September quarter reveal that these companies can’t have their cake and eat it too. On the one hand, Bharti Airtel’s consolidated net profit for the three-month period ended September declined marginally to Rs 1,460.70 crore, compared with Rs 1,462 crore in the previous quarter, on the other hand, Idea Cellular’s second quarter net profit was down 58.5 per cent sequentially to Rs 91.4 crore.
For Bharti Airtel, which is India’s largest telecom service provider, in what is already considered to be a seasonally weak quarter, India mobile revenue fell 2.1 per cent sequentially, as voice volume and realisation fell 0.5 per cent and 3.2 per cent quarter-on-quarter, respectively. And even though data volume increased 12.7 per cent compared with the quarter ago period, realisation on data services was down 10 per cent. The company’s management also highlighted that Jio’s free services have caused a slowdown in growth of the company’s mobile business.
However, the tariff war, between the existing operators and Reliance Jio, is expected to take a better shape once the latter’s free services end on December 31. “The telecom sector, as a whole, is exposed to the ongoing price war so as to protect the subscriber market share. The war is likely to get far more aggressive as the free offer period of Jio comes to an end in December and the incumbents match up the tariff cuts,” said ICICI Securities.