Reliance Jio's Rs 49 per month offer may force Airtel, Vodafone and Idea to shift to VoLTE 4G

By Techenonik  | Jan 29, 2018, 06.00 PM IST

KOLKATA: Reliance Jio's Rs 49 per month offer to JioPhone users could force the top three telecom operators — Airtel, Vodafone and Idea — to switch off their 2G legacy networks and shift to more cost-efficient VoLTE-based 4G networks to protect their rapidly falling average revenue per user (ARPU), analysts said. 

They said that the latest JioPhone offer — the sector's lowest price plan offering free voice for life and a GB of data at 4G speeds over a 28-day validity period — is likely to attract many more low-end 2G voice customers across India who have so far hesitated to adopt 4G. 

Brokerage JP Morgan said the offer "would draw 2G voice subscribers" away from Airtel, Vodafone and Idea as "Jio's feature phone pricing is as much as 30-50 per cent cheaper than incumbents' rates". 

This is expected to cause more financial pain to incumbents as it comes on the heels of Jio's equally aggressive Rs 98 per month 4G entry-level price plan that is already estimated to shave off ARPU, a critical performance metric, of incumbent telcos by up to a third in the coming quarters. 

The 2G feature phone user segment, the US brokerage said, constitutes a whopping 70 per cent of India's billion-plus mobile user base garnering as much as 50 per cent of sector revenues. 

According to data collated by the telecom regulator, the ARPU of prepaid users is Rs 70, of which the voice ARPU of feature phone users is in the Rs 50-60 range. 

Brokerage Motilal Oswal said "the latest JioPhone price plan would be at nearly 10 per cent discount to the average feature phone subscriber ARPU". 

The telecom sector, already plagued by brutal price competition and debt of Rs 5 lakh-crore, has had another poor quarter. Unlike Jio, which reported a strong ARPU of Rs 154 in the quarter to December, Airtel and Idea's fell to Rs 123 and Rs 114 respectively, stung by the cut in interconnect rates, which compounded pressure on their voice and data businesses amid continuing price wars. 

Kotak Securities said Jio's latest pricing moves targeting millions of 2G feature phone customers of incumbent carriers would further damage the latter's already weak financials, forcing them to take tough calls like shutting down their 2G and 3G networks ahead of current plans and rolling out VoLTE-based 4G networks on a war footing. 

"We wonder if there is an economic case anymore for incumbents to keep their 2G networks running if the JioPhone even sees modest success," Kotak said, adding that "the ultra-expensive 900 MHz spectrum that incumbents are using for 2G would fail the impairment test as 2G spectrum", especially since the steep cut in mobile termination charges has "anyways killed the incoming ARPU leg of 2G network economics". 

According to Kotak, Jio's aggressive Rs 49 price point also suggests "Jio has ironed out all supply-related constraints on the JioPhone", a view also endorsed by Deutsche Bank. 

The German investment bank said Jio had indicated at a recent analyst meet that it had "worked with its Chinese vendors to build inventory prior to the current JioPhone offer", although "the price plan is lower than expected". 

The JioPhone, which was launched by Jio's sister company, Reliance Retail, comes for a Rs 1,500 deposit, refundable after three years on return of the device. To avail themselves of the refund, subscribers need to recharge for a minimum Rs 1,500 a year. 

Under the new plan, JioPhone users would need to top up the minimum monthly charge of Rs 49 with additional sums to reach the Rs 1,500 annual recharge figure, if they wish to avail themselves of the full refund. Part refunds are also allowed for those surrendering the device earlier. 

Sector experts expect the latest price move to intensify competition with incumbents who are already dishing out cashback offers on their alliances with smartphones. Recently Idea, Vodafone and Airtel announced cashback offers on their 4G smartphones, bringing down the effective price of the devices to under Rs 1,000.