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RJio’s havoc continues – the only Indian MNO to grow its base

The entry of Reliance Jio (RJio) into the Indian mobile market sparked intensification of the country’s wave of consolidation, which many believed was long overdue, after years of falling ARPUs and an overcrowded operator landscape. However, the series of mergers and acquisitions has not produced a smaller set of stronger, more competitive operators – not yet, anyway. In September, RJio was still the only operator to win new mobile customers; while the country’s budding towerco business is under pressure from the reduced number of MNOs.

According to the latest set of data from regulator TRAI RJio added a net figure of 13m subscribers during the month, to make a total of 252m. By contrast, Bharti Airtel, until recently the biggest Indian MNO, lost 2.3m, while the new market leader – the merged Vodafone Idea – lost about 8m.

In total, India added just 2.4m mobile customers, which means most of RJio’s growth came at the expense of other providers.

The newcomer has been tempting consumers with low costs data plans and devices, such as the inexpensive 4G JioPhone. The operator designed this, like some of its small cells and other equipment, inhouse, working with a close-knit group of low cost suppliers. Its aim is to target 2G subscribers and make it affordable for them to leap to 4G – which gives it a huge base of users to go after, and a headstart over all its rivals.

RJio is also aiming to offset the inevitable margin squeeze that comes from price wars and low cost consumer propositions. It is doing this in two ways. One, by achieving far lower cost to deliver data services, compared to its rivals, by starting from scratch with a modern network based heavily on software, automation and commodity hardware.

And two, by also investing in higher value services like content, mobile enterprise applications, connected cars, and wide-ranging bundles of household services spanning fixed broadband, video, smart home, mobile data, mobile money and other emerging apps.

The newest MNO is also looking to steal a march on competitors in India’s vast rural populations, by pushing affordable offerings like the JioPhone, and via a new alliance with Facebook to educate rural users in use of WhatsApp and other services. However, in rural areas, or other low budget demographics, RJio runs the risk of investing in customer acquisition, but ending up only as the ‘second SIM’, while the customers’ main relationship remains with their original MNO, or with their device provider or Internet applications provider.

By contrast, the established players face the opposite problem of inactive customers, which led Airtel and Vodafone Idea to announce compulsory recharge schemes in October. Typically, a dual-SIM user spends as little as INR10 ($0.14) on recharging to keep phonen numbers active and still receive incoming calls. Airtel and Vodafone Idea now require customers to spend at least INR35 at the end of a monthly recharge cycle (together, they have about 250m dual-SIM customers).

This will be a drop in the ocean compared to the savings Vodafone Idea is hoping to make from rationalizing networks and staff after its merger, and from the economies of scale it will target in 4G expansion and eventual 5G. It has started awarding new equipment deals, and has presented Huawei and ZTE with a rare gleam of light. Although the Indian government has periodically, over the past five years, imposed security procedures on Chinese imports, and hinted at future sanctions, it has not introduced any bans, and the Chinese firms are said to have gained at the expense of Ericsson and Nokia.

Huawei is reported to have won network contracts in seven of India’s operating regions or circles, including the crucial metropolises of Delhi and Chennai, while ZTE has won deals in five. Nokia and Ericsson actually won contracts in a larger number of circles – nine and eight respectively – with Nokia winning two other huge cities, Mumbai and Kolkata. But the European vendors’ share of the value of this round of deals is about 65%, local reports indicated, compared to 80% previously.

Vodafone Idea recently said it aimed to boost 4G network capacity by 50% in the next four months to support rising levels of mobile data usage and improve India’s notoriously poor quality of service, attracting higher value customers with quality rather than rockbottomm fees. It currently has about 178,000 4G cell sites across the country.

But meanwhile, Vodafone Idea is integrating its two existing networks to rationalize sites and reduce the cost of management and maintenance. This process should drive savings of up to INR140bn ($1.98bn) by 2021, it says.

This is bad news for site owners and towercos, since the merged operator has already begun the process of shutting down duplicate or nearby sites, as well as starting to refarm 2G and 3G spectrum to boost LTE capacity. It plans to exit about 27,500 towers, about 3% of the country’s total, and more will follow, according to research and ratings firm CRISIL. Towercos are also being hit by the loss of tenancies from smaller players like Aircel and Telenor, which have left the market or been acquired.

As a result, although the overall number of towers will grow as a result of 4G expansion and densification, towercos will see their operating margins fall in the next couple of years, CRISIL predicts – from about 44%, the norm over the past 4-5 years, to less than 40% by March 2019, and by a further 7.5 percentage points in the 2020 fiscal year. In the first half of the current fiscal year, one of the major tower operators – MNO joint venture Bharti Infratel – saw its operating margin fall by 3.5 percentage points year-on-year.

Finally, the government has approved the transfer of spectrum to RJio from its previous stablemate, Reliance Communications (RCom), which is exiting the market. RCOM subsidiary Reliance Realty has complied with a court order to submit a corporate guarantee worth INR14bn to the Department of Telecommunications (DoT), and in return the government will approve its spectrum sale to RJio, originally agreed about a year ago, within the week.

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