As one Reliance rises, another falls – the saga of the bitter rivalry between India’s Ambani brothers and their respective companies has taken on a new twist ever since Reliance Industries (RIL) re-entered the mobile operator space, going head-to-head with its previous stablemate Reliance Communications (RCOM). RIL’s Reliance Jio arm has used aggressive pricing and cost structures to steal market share rapidly from the established MNOs, while RCOM, it now seems, may back away from some wireless businesses altogether.
One such strategy is Jio’s adoption of an uncarrier model for its free yet comprehensive video service, so when Jio customers have hit their 4G data caps, data used after this is throttled down to 128Kbps, meaning subscribers aren’t hit with hefty overage charges. RCOM has no presence in the mobile-first video market but has confirmed that it will be closing down its DTH service Reliance Digital TV later this month. Rival DTH operator TataSky has offered subscribers of Reliance Digital TV the option to migrate services for free, while Jio is plotting its own entrance into the consolidating Indian DTH market.
The two Reliance companies have cooperated on some levels, notably sharing of sites, fiber and spectrum, and a merger of the two has been rumored at various points. But RCOM has suffered – like the other mobile majors, Bharti Airtel, Vodafone and Idea Cellular – from the new price war, unleashed in a country with very low ARPUs combined with galloping levels of data usage and consequent capex expense.
Now RCOM is reported by the Economic Times in India to be planning to shut down major parts of its wireless business next month, following the failure of the bid to acquire fellow MNO Aircel. The ET said the operator would announce its plans within 30 days, citing a recording of a speech by Gurdeep Singh, executive director of Reliance Telecom and CEO of the mobile arm. In the recording, Singh said RCOM had reached the stage “where we need to call it a day on our wireless business” (though ET warned that it had not fully confirmed the authenticity of the audio file).
Other sources, however, said the closures would not apply to the whole mobile operation, but to the ageing 2G business and low-ARPU services and customers. That would refocus RCOM on higher margin services on the 3G and 4G networks, and potentially primarily on enterprise customers rather than consumers. 4G is going to be the primary focus as “irrational pricing by all industry participants have destroyed profitability of traditional 2G/3G mobile business”.
Singh said on the recording that RCOM would migrate some services and their users, including international and consumer voice and 4G dongle postpaid, to the enterprise business, as long as they were profitable. “But aside from these three, everything else will be shut down,” he said.
There may still be uncertainty about the specifics, but it seems very likely that RCOM will significantly reduce its mobile activities, and there is far more consensus about the causes of its troubles.
Singh hinted that the last straws for the debt-laden operator were the failure of the Aircel merger plan, which would have brought more scale, customers and spectrum to the party; and “the creative destruction” of RJio’s disruptive entry. “We tried whatever means to sustain and put oxygen in the business but we will not be able to sustain the business beyond 30 days from now,” he said on the recording.
Some of RCOM’s rivals were already hovering like vultures at the weekend, advertising various offers to tempt customers away. Bharti Airtel ran ads welcoming RCOM customers to its networks, while Vodafone announced a referral scheme, promising a £1.50 incentive to any of its customers who introduced a friend.
Meanwhile, consolidation continues in this cut-throat market. RCOM’s Aircel deal may have collapsed (though it has acquired the smaller SSTL), but Vodafone’s own deal with Idea Cellular is making its way through approval processes, while Bharti is acquiring Tata Teleservices and Telenor is existing the market. No wonder that rumors of an RJio/RCOM merger are back in force.