With Jio, Reliance Industries readies to usher in second telecom revolution

Christmas has come early this year for India’s telecom subscribers as India’s richest man and Reliance Industries Ltd (RIL) chairman Mukesh Ambani came bearing gifts at the company’s 42nd annual general meeting (AGM) held in Mumbai on Thursday.

In the process, a paradigm shift is imminent in the way the Indian telecom market functions as Ambani doled out promises of lifetime free voice calls and national roaming, 4G-enabled smartphones priced as low as Rs 2,999 and data services priced as low as Rs 50 per GB. The rates at which Jio, RIL’s telecom brand, promised to make data services available to its subscribers is perhaps the lowest in the world, costing less than $1 per GB. Ambani sweetened the offering by announcing further freebies spanning from the next few months up to a year, to attract users on its expansive network.  
 
This is the second wave of revolutionary telecom services that RIL intends to introduce in the country. The first was in 2002 when RIL entered the telecom business, offering calls at rates cheaper than what it cost to send a postcard; and mobile handsets priced as low as Rs 501. That business has since been demerged and taken over by younger brother Anil Ambani's Reliance Communications.     

“Jio’s mission is to take India from (a scenario of) data shortage to data abundance,” said Ambani at the AGM. “In this era where things are going digital at an exponential rate, those not going digital will become uncompetitive and not survive. India and its 1.2 billion people cannot afford that.”    

The stock markets reacted immediately to the announced comping from Reliance Industries. Stocks of  rival telecom companies Bharti Airtel and Idea Cellular plunged even as Ambani started announcing details of the Jio Services. Idea Cellular closed down 10.48 percent at Rs 83.70 at the BSE while Bharti Airtel slid 6.37 percent to Rs 310.7. Reliance Industries finally closed down 2.73 percent at Rs 1,029.15.

Ambani, who believes RIL’s consumer-facing businesses like telecom and retail have an earnings potential similar to its refining and petrochemicals business in the long-run, put a date to the much-anticipated commercial rollout of the conglomerate’s telecom services on Thursday. September 5, 2016, is the date from when services will be available to potential customers across the country.

Key takeaways from Ambani’s speech at AGM:

• While Jio has been conducting the most exhaustive field trials to test out its network, commercial rollout of its services has been slated for September 5, 2016.
• From the first day itself, Jio’s services will reach 18,000 cities and towns, and two lakh villages across India. Ambani promised that by March 31, 2017, Jio’s services will be available in areas that account for 90 percent of India’s 1.2 billion-strong population.
• Jio is India’s first all IP (Internet Protocol) network offering 4G services over VoLTE (voice over long term evolution). “Jio will offer only 4G speeds; and not mostly 2G, sometimes 3G and once-in-a-while 4G,” Ambani said. The network is future-proof and able to support 5G and 6G services as and when they are launched. It has also been conceived as a mobile video network that has the necessary foundation to support virtual reality and augmented reality experiences in the future.
• Reliance, through its recently launched smartphones brand ‘Lyf’, will offer 4G-enabled handsets to Indian consumers at prices starting as low at Rs 2,999; and smartphones of higher specifications at different price points such as Rs 3,999; Rs 4,999; and Rs 5,999. For those who wish to use their existing 2G/3G devices to use Jio’s 4G services, a personal wireless router called JioFi, priced at Rs 1,999 can be used.
• Jio has fortified its network with a suite of applications offering diversified content that includes more than 300 live channels and 40 HD channels; 6,000 movies, 60,000 music videos; 1 lakh TV series episodes across 10 languages; 10 million songs; different newspapers and magazines; and a wallet service for cashless transactions.
• To enable users to sign up to its services without much hassle, Jio has also enabled an e-KYC (know your customer) mechanism, whereby anyone with an Aadhaar card can sign up for a Jio connection in 15 minutes. A My Jio Digital Companion will help subscribers with various processes such as signing up, chatting with customer care executives, and even tracking consumption and bills real time.  
•  As an inaugural offer, Jio will be offering its complete bouquet of applications, worth Rs 15,000, free to subscribers till December 2017.
•  Voice calls on Jio to all networks across India will be free for lifetime. There will be no national roaming charges either.
• There will be no blackout days on the Jio network, which implies that unlike the prevailing practice of charging customer more for messages sent on festive days like Diwali or New Year’s, messages will be charged at a standard rate every day of the year on the Jio network.
• Data on the Jio network has a base rate of Rs 50 per GB, which according to Ambani is the lowest in the world. The effective data rate goes down further as usage increases and after accounting for unlimited 4G made available for downloads at night. Tariff plans range from Rs 150 per month to Rs 5,000 per month.  
• Jio will also be installing hotspots in public places across the country that will enable subscribers on its network to log on to these internet zones and access data services at even cheaper rates.
• Students with a valid ID card can enjoy 25 percent more data over and above what is entitled to them as per their respective tariff plan
• From September 5, 2016, till December 31, 2016, all Jio services, including voice, data and video will be free for all users under the Jio Welcome Plan.
• Jio will also work towards fostering an ecosystem in which Indian entrepreneurs can grow their startups using its network and services. A Jio Digital India Startup Fund with a corpus of Rs 5,000 crore to be deployed as venture capital over the next five years has been created. Jio will also be creating entrepreneurship hubs across the country.
• Ambani has set his team at Jio a target of roping in 100 million users on the Jio network in the “shortest possible time,” which he expects will drive data consumption to the tune of 250 crore GB per month. A back-of-the-envelope calculation shows that at this level of data consumption anticipated by Ambani, and assuming a base rate of Rs 50 per GB, Jio could be looking at annualised revenues of Rs 1,50,000 crore. 
  
  

Jio’s future plans, as outlined by Ambani, promise to shake things up in India’s fast-growing but intensely competitive telecom market, which has seen tariffs nosedive over the years as incumbents have battled each other to corner a greater share of the pie. But much will depend on the rival telcos’ willingness to play ball when it comes to providing sufficient interconnect points to Jio for calls made from the latter’s network to their networks.

This has been a bone of contention over the last few weeks between Jio and industry lobby Cellular Operators Association of India (COAI), which counts other large telcos, including Vodafone, Bharti Airtel and Idea Cellular, as members; and Ambani didn’t pass on the opportunity at Thursday’s shareholder meeting to send an unequivocal message to competitors.

“Incumbent operators have significant advantages over new entrants, since incumbents have well-established networks and existing customers. New entrants require fair access to both,” Ambani said. “Therefore, the onus is rightly on the incumbent operators not to misuse their market power by creating unfair hurdles, when it comes to providing points of interconnect between their networks and Jio’s network. Such hurdles will serve only to create a poor experience for Jio’s customers who are trying to make calls to incumbent operators’ networks.”

Ambani pointed out that over the last week, Jio customers who are part of its trial phase suffered five crore call failures to other networks because of insufficient interconnect capacity provided by incumbents, “giving the impression to common Jio customers that voice is not working, when actually the incumbent operators are deliberately dropping calls.”
 
Tanu Sharma, associate director (large corporates) India Ratings and Research, a Fitch group company said that data tariff structures are likely to be disrupted with the launch of Reliance Jio, while data volumes and subscriber growth will accelerate.

“It will intensify competition which will squeeze the market share, EBITDA margins and credit metrics of incumbents,” she said. "Large telecom companies like Bharti Airtel Limited, Vodafone India Limited and Idea Cellular Limited have already undertaken pre-emptive price cuts by offering higher data volumes for the same price to retain customers,” she said.

“[Reliance Industries] has delivered a knockout punch on pricing of voice and data tariffs which everyone was waiting for. No doubt tariff plans for voice and data is going to be a game changer for the telecom industry,” Dharmesh Kant, Head – Retail Research of Motilal Oswal Securities said.

 (Disclaimer: Reliance Industries Ltd is the owner of Network 18, publisher of Forbes India)