The aggressive entry of Mukesh Ambani-led Reliance Jio, which is offering free voice and data services for a few months, was expected to put the older telecom companies on the backfoot. In reality, the disruption by Jio has caused severe damage to the stalwarts of the Indian telecom industry - Airtel, Vodafone and Idea Cellular.
Take market leader Bharti Airtel. In the third quarter of 2016/17, the company reported a 54.9 per cent dip in net profit and 3 per cent drop in net sales compared to the corresponding period last year. The condition of Idea Cellular, ranked third in terms of subscriber base, is also bad. It reported a loss of Rs383 crore, its first-ever quarterly loss since June 2006. The impact on Idea is bigger because of the profile of its customers. Some estimates suggest that Idea earns 54 per cent revenues from category B and C circles; in case of Airtel, this is 46 per cent. The average revenue per user (ARPU) in these circles is lower than that in metro cities. Last November, UK's Vodafone Group had written down the value of its India unit by 5 billion euros, owing to the rise in competition.
When Jio started offering free voice and data services in September, the other telecom operators were taken aback, as nearly 70 per cent of their revenues come from voice calls. In response, Airtel, Idea and Vodafone also started offering free voice calls at lower-priced plans to protect their user base. This hit voice revenues in the third quarter.
Jio has managed to get a substantial customer base - estimated to be 100 million. It has also extended its free services till the end of March. The older companies, led by Airtel, have knocked the doors of the Telecom Disputes Settlement and Appellate Tribunal against TRAI's decision to allow Jio to continue its free promotional offer beyond the stipulated 90 days. They are hoping that once Jio starts charging, the customers will shift back to them.
Broking agency CLSA says that "Jio may attain 100 million subscribers soon, but the challenge will shift to subscriber retention as it transitions from free to paid service without losing focus on ARPUs. It will be important to track improvement in data speeds and calling experience in the coming weeks which will be necessary to entice customers to continue using Jio."
Jio is showing no signs of slowing down. After spending Rs1.7 lakh crore, it is building a war chest to continue its fierce battle. Last month, it said an additional Rs30,000 crore - to be raised via a rights issue - would be invested to boost the network. Telcos, which were waiting for Jio's firepower to fizzle out, have started exploring new survival strategies. For instance, Vodafone India and Idea Cellular are now talking about a possible merger. Jio may end up changing the face of Indian telecom.