Beyond 4G: Incumbents bet on 2G, 3G and rural
Airtel, Vodafone and Idea Cellular plans to counter Jio by offering 2G and 3G services, and offering greater rural presencebusiness Updated: Sep 06, 2016 11:11 IST
Reliance Jio, which offers low data tariffs and free voice calls, is in for some strong resistance from competitors.
Airtel, Vodafone and Idea Cellular plans to counter Jio by offering 2G and 3G services, and offering greater rural presence.
“Growth will take place in non-urban areas, largely in villages,” said an official with one of India’s top three telecom operators. Incumbents already have more than half of its users coming from India’s villages.
Vodafone believes India is still segmented – there is enough space for first-time internet users, who use 2G services.
In a note on Jio, Deutsche Bank Markets Research said: “We believe Jio’s offers will not impact the revenue table of the sector... We believe investors underestimate the strength of Bharti’s franchise and cost position.”
“We expect Bharti Airtel’s operating performance to weaken because of competitive data tariffs and free voice calls,” S&P Global Ratings said. It said the impact of Jio’s entry is uncertain, but on a conservative basis, it assumes that “revenue growth for its (Airtel) domestic business could decline to below 5% during the fiscal year ending March 31, 2018 and the next”.
Though Jio is a formidable competition, brokerage houses believe it will be a tough battle for India’s richest man, Mukesh Ambani, in telecom.
According to Manish Adukia of US-based banking firm Goldman Sachs, incumbents have built a lot of capacity (including spectrum portfolio) in the past 12-18 months. “Bharti is well-positioned to defend marketshare from Jio.”
Other brokerages, too, mentioned Jio’s challenges, since it works only on 4G handsets. Sunil Tirumalai, research analyst at Credit Suisse, said Jio will face the hurdle of 4G devices, which in any case has low penetration. “The four-month free offer comes as a carrot to induce new phone purchases.”
Feature phone users – 65% of the total user base – is left out of Jio’s scheme of things.
“Also, Jio’s lowest tariff plan at Rs 149 per month is comparable to the current voice ARPU (average revenue per user), so current voice users might not switch to Jio,” wrote Naveen Kulkarni, analyst at Chicago-based Phillip Capital.