The merger of Vodafone-Idea, which has just got Competition Commission clearance, will bring in a dimension to the telecom business. The combined entity, with over 34.48 per cent (406 million customers) of the current market, will become the largest telco. But the merger has to happen quickly to take on Jio.
However, Jio has the muscle to dislodge them from their numero uno position or at least get pretty close if all the pieces of their strategy fall into place, say analysts. They point out that its immediate goal is to get 300 million customers. It has succeeded in its first phase of the launch by garnering half of the smartphone users (125 million) and over 80 per cent of the 4G device users who use it as their second SIM.
And it could upset the applecart if it is able to strike a deal and buy or merge with the Reliance Communication-Aircel-MTS combine, which has over 177 million customers and also a lot of valuable 4G spectrum. Of course the Reliance Communication combine might want to stay independent for a while.
So what will the big incumbents do to prevent Jio from taking their market share?
To answer that question, one must look at the response of the incumbents to Jio’s initial launch — reducing data tariffs closer to Jio’s and matching them by making voice free and unlimited, but maintaining a premium of over 20 per cent. The strategy worked to some extent as incumbents did not lose customers despite Jio offering services free till the end of March. But they lost revenue as most customers were using Jio as the second SIM and usage was getting divided and so was the monthly bill. But smaller players saw a substantial erosion in their numbers. They lost 20 million customers in the past eight months.
So will incumbent operators offer free subsidised 4G feature phones to take on Jio? Bharti has made it clear that it will not get into subsidising mobile phones. But that does not mean it will sit quiet. Talks are on between some incumbent operators and potential 4G feature phone device manufacturers to sell them data at wholesale rates, which they can bundle with their phones. “A consumer who buys the branded phone gets, say, free data for a certain number of months or at a very cheap rate. So they can ensure that most of their customers don’t shift to Jio,” says a senior executive of a device firm.
But if Jio fails to get the numbers or, as some experts say, wants to grab 40 per cent of the market, the price war could get fiercer. But most experts say Jio is showing maturity in increasing tariffs. If that is the trend, it won’t go for a price war. For instance, it has not indulged in discounts on the 4G feature tariff, asking consumers to pay double of what is their ARPU. It has hiked the Rs 309 plan — its most popular plan — to Rs 399, bringing it closer to its competitors. CLSA points out dual SIM usage will fall by 50 per cent (30 per cent of customers use double SIM) in the next 12 months. That is because as the offers between operators become similar, consumers will move to one operator, pushing up ARPUs again.
That is good news.
And after the current restructuring, the turbulence in the industry might just be a thing of the past.