The developments in India’s mobile market will be horribly familiar to operators in France, which are only just stabilizing after Iliad’s Free Mobile wreaked havoc as a new entrant, unleashing price wars by harnessing its capex-light, modern network on incumbents with all the expense of legacy infrastructure and services. Reliance Jio has been striving for a similarly disruptive effect in India since it finally launched its LTE-only services, with a high-impact free introductory offer, less than a year ago.
In that time, RJio has captured 41% share of India’s total wired and wireless broadband market, according to new figures from regulator TRAI. This far outstrips its largest rivals – Bharti Airtel, Vodafone, Idea Cellular and Reliance Communications – and the impact on them is clear, as they announce a string of poor results and of consolidation deals.
This dominant position has given “uncarrier” RJio free reign to be as disruptive as it likes in OTT video, offering 300 TV channels for free through its Jio Play app, built into its basic data charges – a move that has had rivals cutting their data prices by as much as 80%. It also enticed in new subscribers with free bundled subscriptions to Jio Chat, Jio News and Jio Moneyetc (e-payment), exclusively on its LTE network.
This has driven competing cellular and DTH players towards Netflix, with Airtel, Videocon d2h and Vodafone recently signing up to bring Netflix content to Indian consumers. Although Netflix has stubbornly refused to bring its price below $7.50 a month, which is more than a full cable subscription in India, and therefore we cannot classify it as a viable competitor to RJio in OTT video.
According to TRAI, Bharti Airtel, India’s largest MNO, has a total share of 18.4% by number of subscribers, followed by 13.67% for Vodafone and 8.76% for Idea – which is due to merge with Vodafone. This is one of the megadeals sparked by the tough state of the Indian market, which has been over-competitive for years, resulting in tiny ARPUs and inadequate investment in quality of service. The major operators had made some progress in boosting their rock-bottom ARPUs by launching 3G and 4G, improving quality, and adding new data services, but that has suffered a severe setback since RJio introduced price wars and ultra-low prices to the area where the MNOs had sought to charge a premium, in LTE.
Of course, the TRAI figures relate to broadband overall, and some of the MNOs have no place in the wireline market at all (although Airtel is the largest wireline broadband provider, with 2.1m users). However, broadband usage is disproportionately wireless in India because of the poor wireline coverage in many areas, and the initiatives to extend broadband services to the whole population should present a major growth opportunity for the LTE operators. However, TRAI’s report suggests that RJio is making the most headway in this respect, grabbing market share while depressing ARPUs and profits for everyone. In turn, that leaves the other MNOs with more of their revenue relying on low margin, legacy services like 2G voice, than they had planned for.
In the wired broadband market, Atria Convergence Technologies comes after Airtel with 1.22m users and state-owned operator MTNL, which has the Delhi and Mumbai territories only, has just under 1m users. Total broadband subscribers reached 300.84m, compared to a total telephony subscriber base of 1.21bn, said TRAI, while wireless teledensity has risen to 92.12%.
The report highlights the fact that the established MNOs are struggling to make the transition to broadband and 4G profitably, not just because of the price battles, but because they have to transition layers of legacy networks, data centers and business models, often hampered by regulatory restrictions and inadequate amounts of spectrum. By contrast, RJio has a greenfield network and a good amount of spectrum, including the national BWA licence (unpaired 2.3 GHz) it acquired in 2010 (when most of the other operators were financially exhausted by the 3G auctions); plus 1.8 GHz spectrum in eight of India’s 22 operating ‘circles, and 850 MHz in four. Following the most recent auction in India, last October, RJio added the 850 MHz licences and became the second largest owner of spectrum after Airtel, with a total of 554 MHz, all for 4G (Airtel has 520 MHz of its total of 701 MHz for 3G or 4G, according to Goldman Sachs).
Just as importantly as the spectrum, RJio has been able to plan from the start for a network which is converged, capex-light and flexible, in order to keep costs down – enabling it to charge low fees – and support a wide variety of services. So it has invested in a dense fiber network, either owned directly or via partners, which will support urban small cells along with macro towers. It has incorporated large amounts of WiFi into its network. It shares or outsources network resources wherever it can. It is developing content and ecommerce offerings in order to add value and ARPU. And it has been able to adopt virtualized elements from day one to reduce total cost of ownership and boost flexibility. For instance, its work with Accedian on a virtualized network monitoring system was highly publicized, and it recently joined ONAP, the organization which is adopting an open source management and orchestration solution for virtualized systems, based heavily on AT&T’s ECOMP technology.
Abel Tong, senior director of marketing at Ciena, told LightReading that the threat from RJio and its modern, flexible network would be a “tipping point” for other Indian operators to adopt virtualization and software-defined networks [SDN] in order to transform their own cost base. The move to adopt SDN has been slow so far in India, partly because most MNOs outsource the majority of the deployment and running of their networks to equipment suppliers’ managed services departments. For this reason, virtualization may be introduced first in wireline networks, which are smaller and have less legacy equipment. However, Vodafone and Idea Cellular are in the forefront of conducting trials and issuing RFPs for virtualizing elements of the mobile network, the former as part of its global Project Ocean initiative.
All its work on a light, flexible infrastructure will help RJio to follow some of the trends in pricing and services which are taking hold in more mature mobile markets like the US – including bundling of wireline, wireless and content services; and loss-leading data plans or devices to boost customers’ loyalty and push them to adopt added-value services. In RJio’s case, the latter started with free data for an introductory period (though this was reduced by order of the regulator after rivals launched legal action). Now it has moved towards very low cost devices, which have always been a critical – and challenging – element of the business model in India, because of low average spending power and the lack of a tradition of contracts and subsidies.
Various financing schemes exist, but now RJio is taking a different tack, offering a featurephone at “effectively zero price” with access to unlimited data. This borrows from the Internet services world. When tablets were being sold for many hundreds of dollars as premium gadgets, Amazon, with its Kindle Fire range, showed how a very cheap device could drive uptake of ecommerce, web and content services. And Facebook, despite being restricted by net neutrality rules, especially in India, has worked on providing free access to basic applications, from low end devices, in order to extend Internet access to more people. All these tactics rely on hooking the user with a very low cost entry point and then hoping most of them increase their usage and move up to premium services (which may still be worth less than a dollar a month – this is tolerable if the operator can secure sufficiently large numbers of users, and its cost of delivery is low).
All this is true of RJio, whose chairman, Mukesh Ambani, said the JioPhone went on sale last week for INR1,500 ($23), with tariff plans from INR23 (36 US cents) for two days to INR153 ($2.40) per month. All of these include unlimited data and free voice. The INR1,500 can be refunded if the handset is returned within three years.
As their shares slid in value, the other MNOs cried foul. Bharti Airtel said RJio’s practices, if allowed by the regulator, would enable it “to use its muscle power and price its services in a predatory manner to kill the rest of the industry and create a monopoly”. RJio recently called on TRAI to abolish the current IUC (interconnect usage charge) of INR0.14 and replace it with a ‘bill and keep’ regime. But Airtel said this would allow the newcomer to “build its business by getting a free ride on the highways built by Airtel and other operators”.
RJio has accused the incumbents of earning excess revenues from the curren IUC, but Airtel insists it is currently losing INR5.5bn ($85.4m) a month interconnecting the high volume of calls coming from the new entrant’s network. And Vodafone CEO Vittorio Colao denied RJio’s claims that the established telcos had made over $15bn from inflated prices and lax regulation, saying this was “fiction”. The top three MNOs want the IUC increased, as they handle the largest number of third party interconnects, but along with RJio, RCOM (soon to merge with Aircel) and other smaller players, plus consumer activists, have called for an end to the charge, mirroring what is happening in some other regions.
The squabbles over regulatory regimes highlight the pressure under which the established operators are living in a market disrupted by RJio. RJio’s parent Reliance Industries has partnered with its former sister company, Reliance Group (which owns RCOM), to help build the RJio network cost-effectively – the two operators share significant amounts of passive infrastructure and even spectrum. However, that does not stop the newer company battling commercially with its step-sibling. RCOM reported a huge net loss of INR12.2bn ($190m) for its first fiscal quarter, which ended on June 30, and its turnover dropped by 33% to INR35.9bn, which the MNO blamed on “the impact of disruptive pricing and unprecedented competitive intensity”. Previously, RCOM had announced its first ever annual loss, for the year ended March 31.
The company said in its Q118 statement: “The telecom sector in India continues to be very adversely impacted during the financial year 2017-18 by competitive intensity on a scale never witnessed before in the country.” Its subscribers base fell from 98m in calendar Q2 2016 to 81m in the most recent quarter, according to GSMA Intelligence, pushing it into seventh place with 7% share, falling below the big three, RJio, the MNO it is acquiring, Aircel (7.6%) and state-owned BSNL (8.6%). RCOM is also merging with SSTL, and that transaction should complete this month, bringing a dowry of 30 MHz of spectrum in the 850 MHz band, distributed across eight circles. After the mergers with SSTL and Aircel are completed, RCOM will have about 176m mobile subscribers and 15% share.