Reliance Jio effect ebbing, but industry not out of the woods

Manish Marwah on Jio and internet war

 

After severely denting the revenues and businesses of many telecom companies, the disruption caused by new player Reliance Jio since September last year was ebbing. But its aggressive launch by offering freebies in the initial months has spurred consolidation of private telecom firms broadly into three main groups: Airtel, Vodafone and Reliance Jio. It has also played a role in the fast tracking closure of voice business of debt-ridden Reliance Communications, run by Anil Ambani, younger brother of Jio promoter Mukesh Ambani. Another firm Aircel is struggling and may ultimately exit the telecom business.

As of August 2017, Airtel led the wireless subscriber base with a share of 23.7% that represented 28.1 crore subscribers followed by Vodafone, Idea, Reliance Jio, BSNL, Aircel with a share of 17.6%, 16.1%, 11.2%, 8.9%, 7.5%, respectively. The total wireless subscriber base stood at 118.58 crore as of August 2017.

Jio’s market share gain is largely explained by the dual SIM phenomenon and rapid loss of market position by the smaller telecom firms. Jio’s biggest impact has been on data consumption pattern as all its wireless subscribers are by default broadband data subscribers. This has increased not only the absolute number of data subscribers, but also its discounted tariffs have increased the data consumption multi-fold. Going forward as tariffs move up, the multiple SIM usage will reduce and average revenue per user (ARPU) per SIM will move up.

The entry of Jio impacted the industry’s ARPU. The all-India GSM ARPU that was Rs126 in the June 2016 quarter declined on a sequential basis in each of the coming quarters and fell to Rs 80 in the June 2017 quarter. Though the intense competition in the sector keeps the ARPU under pressure, the norm of bundled plans along with the disrupt entrant Jio raising its tariff gradually provides an opportunity for the telecom players to improve their ARPU in due course. Yet, it may take at least a year for telecom business to stabilise again. Revenues of telecom firms declined by 2% to Rs 1.9 lakh crore in 2016-17, reflecting free pricing by Jio and the rest of the industry’s response to it.

 

Within a year of starting operation, Reliance Jio was able to grab a share of 11.2%, while the majority of the players saw erosion in their market share with respect to the subscriber base. The market share of large players like Airtel, Vodafone, Idea and that of others like Aircel, Reliance Communications and Tata eroded by 1.08%-1.95% on a yearly basis, while BSNL was able to almost retain its share as it contracted by a marginal 10 basis points to 8.9%.

In response to the Jio onslaught, consolidation took-off in a big way with the proposed merger of Vodafone-Idea, acquisition of Tata Teleservices Ltd by Airtel, merger of Reliance Communications-Sistema Shyam Teleservices, decision of Reliance Communications to adopt a 4G focussed strategy with effect from December 1, 2017.

The Jio-led disruption and high-debt overhand in many companies could also lead to over 1 lakh job losses in the telecom sector and related fields in the coming months.

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