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At a time when the Indian telecom sector is in stress, with the upcoming spectrum auction expected to add to the burden, the startling Reliance Jio announcement of zero tariff for domestic voice calls in perpetuity, with sharply lower data rates, has aroused questions about the revenue model and profitability of the new player.
“The era of paying for voice calls is ending. Jio will usher India into a new era on the Jio network – across India, to any network, always. And in the spirit of ‘One India’ - no roaming charges also. Jio will put an end to voice call charges in India,” he said, amid applause from those at the 42nd Annual General Meeting of the company at a rather overcrowded Birla Matoshree Auditorium.
This leaves Reliance Jio with just one option for charging subscribes – and that is for data. The question over profitability kicks in all the more since Mukesh Ambani also said the base rate for data service will be at a discount of a whopping 90 percent over what the industry charges now.
With all this, he did not spell out how he proposed to rake in the money to justify the $21 billion investment. That answer from Reliance Industries has to wait. For now, even the Reliance Jio top brass is not wiling to speak on the subject, wanting the public to rejoice on the grand announcements made by their chairman.
Yet, what the company seems to be banking on is on volumes and variety.
For one, voice telephony will be bundled with data. So at the bottom of the pyramid, there is a price point of Rs 19 for the occasional data user, then on to a monthly tariff of Rs 149 plan for the light data user – going all the way up to a monthly Rs 4,999-plan for the heaviest data user.
The tariff announced also has to be read with two other factors – the target he has set for his Jio team, and the push towards affordable devices.
He wants the team to quickly cobble up 100 million subscribers, against the current broadband base of 150 million subscribers in the country. Apart from this, he said the prices of smart handsets under the company’s LYF brand will start from Rs 2,999.
In fact, just ahead of Reliance Jio announcements, Analyses Mason – a top global consulting firm focused on digital media – said in its latest report that data tariff is pretty steep in India even by the developed nations’ standards, and that there is scope for a 75-percent cut to push usage.
The consultancy said an average monthly increase in data usage to 10.2 GB at a discounted tariff of Rs 57 per GB, with 10 percent contribution from voice, will translate into a total increase in monthly average revenue per user of Rs 645. In Jio’s case, the average tariff may be much lower without the 10 percent contribution from voice telephony and a sharp cut in data tariff.
But the voice telephony for Reliance Jio is not the traditional 2G or 3G offering, but over the Internet. This, the chairman, explained has its own dynamics. The company is also betting big on compelling applications and content, currently worth Rs 15,000 per annum, as also superior digital service experiences.
Initial reactions to the Jio announcements have focused mainly on how it could disrupt the market.
In a somewhat similar vein, Tanu Sharma, Associate Director with India Ratings and Research, a Fitch Group company, said:
The undercurrents are obvious. And given the complexity of issues – and the variables at play – few analysts have opted to hazard a precise guess on how exactly the Reliance Jio’s grand plan will play out on the industry in general and the company in particular.
Markets, though, have given their immediate verdict. The shares of Reliance Industries ended at Rs 1,029.15 on Thursday, down Rs 28.85, or 2.73 percent. But the fall was much steeper for the other two big listed players. Bharti Airel closed at Rs 310.70, down Rs 21.15, or 6.37 percent, while Idea Cellular ended at Rs 83.70, with a sharp cut of Rs 9.80, or 10.48 percent.
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