Reliance Jio 4G LTE launch impact on Airtel, Idea and Vodafone

On Teachers Day, Reliance Jio Infocomm has commenced digital services with a new offer called as Jio Welcome Offer whereby users will have access to unlimited 4G LTE data, voice, video, and messaging services along with full bouquet of Jio applications and content, free of cost up to 31 December 2016. Jio's main target on Teachers day is students.

Chairman of Reliance Industries, Mukesh D Ambani has also announced that domestic voice calls to any network across the country would be free for Jio subscribers even beyond the Jio Welcome Offer. Domestic roaming services would also not be charged separately and average data prices would be around Rs 50/GB, which would be amongst the lowest in the world.

Jio Welcome Offer looks very attractive in the first instance as it offers free voice, free roaming, free full bouquet of Jio applications and content and mobile data at Rs 50 per GB. A close look at Jio Welcome Offer tariff suggests that incumbent operators like Bharti Airtel, Idea Cellular and Vodafone will have a tough time to restrict low end subscribers shift towards Reliance Jio.

So, let's look at how Jio Welcome Offer will impact Bharti Airtel, Idea Cellular and Vodafone with respect to their revenue and profitability.

First Target SME and Student: Looking at the tariff, Reliance Jio will initially target SME and student as they will be the first to shift from operators like Airtel, Idea and Vodafone to Reliance Jio. The reason for the shift is Jio Welcome Offer tariff package looks very attractive to SME and student vertical. SME and student in the age group of 14-30 will be the first to move towards digital bandwagon and majority of them will opt for Rs 299 and Rs 499 package as they offer 2 GB and 4 GB LTE data and 4 GB and 8 GB Wi-Fi data respectively along with free voice and free app. Both SME and student community also travels a lot so they can also utilize Wi-Fi data while on the move within the city.

Apart from this Reliance Jio is also offering a special student offer whereby the company will provide 25 per cent more data on the main tariff plans to all students which is a win-win for students as well as parents.

According to ministry of human resource and development (MHRD), government of India, the total number of students in secondary, senior secondary and higher education is around 237 million. As per MHRD data, the total enrollment in higher education has been estimated to be 28.56 million with 15.87 million boys and 12.69 million girls. If Reliance Jio is able to get 50 million students out of 237 million under its fold it will be a big achievement as the package looks attractive for the student community. Indian Students Breakup :

As per ministry of micro, small and medium Enterprises (MSME), government of India, the total working enterprise in India is estimated to be around 49 million and MSME segment deploy around 111.4 million people across different verticals. If Reliance Jio is able to get even 25 million subscribers from this segment it will be a great achievement for the company. So in toto Reliance Jio is in a better position to get around 75 million subscribers in a year's if they target only student and SME.

If 75 million subscribers shift to Reliance Jio from other operators it will make a big dent in revenues of Bharti Airtel, Idea Cellular and Vodafone at an average ARPU of Rs 150 per month, the total expected revenue will come around Rs 13,500 crore in the very first year of commercial operations which will have a huge impact on existing operator's revenue.

Increase in Telecom Revenue: The drop in data tariff to Rs 50 per GB and free voice call offered by Reliance Jio will definitely help in market expansion of data revenue as data is considered to be the new voice. According to industry experts, non-voice revenue is expected to increase from present 28-29 percent to 45-50 percent in a years time thus leading to overall revenue increase as ARPU (average revenue per subscriber) per month is bound to increase from Rs 180-196 to Rs 250-300 per month. This increase in data revenue by market follower is a good sign as incumbent operators will also do the same in due course of time as they will have no other option.

Capex Investment to Increase: To compete with Reliance Jio, incumbent operators have no other option but to increase capital expenditure by creating lot of data capacities. Even incumbent operators need to increase its city and rural coverage as Reliance Jio is looking to launch 4G services in 18,000 cities and 200,000 villages at one go.

According to industry experts, incumbent operators need to create lot of capacities so that economies of scale can be passed on to end consumer which can result in lower data cost for subscribers. Increase in capex investment will lead to drop in profit for incumbent operators like Bharti Airtel, Idea Cellular and Vodafone in a big way.

Rush for Spectrum Auction: Reliance Jio Welcome Offer has put spotlight on incumbent operators like Bharti Airtel, Idea Cellular and Vodafone to acquire large spectrum in different bands to protect their turf from Reliance Jio. Idea Cellular needs to strengthen its 1800 MHz portfolio as it has 5 MHz in 10 circles and 10 MHz only in Kerala circle. Idea also need to expand its coverage from 11 circles to a pan-India coverage if it plans to compete with Reliance Jio.

Vodafone will need to focus on 700 MHz band and other spectrum bands for 4G rollout in other circles. Even Bharti Airtel need to strengthen its spectrum portfolio for LTE-Advanced or carrier aggregation as in future the focus will be on spectrum capacities for meeting the data demand of their 256 million mobile customers in India. For all this Bharti Airtel, Idea Cellular and Vodafone will need to invest a lot in recent spectrum auction planned from October 2016. All this will impact the bottom line of incumbent operators and it would be interesting to see how they do the balancing w.r.t. spectrum investment and profitability.

Bharti Airtel has been the undisputed leader in mobile voice segment in India but it would be interesting to see who takes the lead in data which is emerging as the new voice. Presently it seems, Reliance Jio has taken an early lead but one needs to see how Airtel, Idea and Vodafone counters Reliance Jio in the short run and delay its 100 million subscriber acquisition.