Rivals converging to Reliance Jio business model
Fewer companies, more mergers, spectrum and infra sharing, more freebies, cheap data plans, VoLTE push, and plans to compete in fixed broadband
With more than 1 billion mobile phone subscriptions, India's telecom market is the world's second-largest after China. After the entry of Reliance Jio, it has become probably the most competitive. Jio started operations last month by offering free voice calls and cut-price data tariffs to its subscribers. As a bonus, it offered free data and free voice calls for the first 90 days, till December 31. No wonder the company amassed 16 million subscriptions in the first month itself.
For an industry already squeezed by high spectrum prices and soaring debt-equity ratios, this was the last straw. So the long-awaited consolidation process was quickly set in motion. And the bigger companies rushed to offer tariffs comparable to Jio's across the board. It looks like four private telcos will before very long rule the roost. And they are converging to the Reliance Jio business model, lowering tariffs, expanding into video via fixed telecom, and bringing in new technology, like VoLTE, faster. Even the subsidized public telcos have been bitten by the tariff-cut bug.
The biggest "merger", inevitably, was in the Reliance camp itself. Anil Ambani, Chairman of Reliance Communications (RCom), told company shareholders that RCom and Jio had "virtually merged...Our spectrum is shared, our network is shared, our fibre is shared, our towers are shared, our voice is shared?" he said.
"As far as our 100 million customers are concerned, as far as our 1 million retailers are concerned, as far as our employees are concerned, and as far as our vendors and partners are concerned, there has already been a virtual merger of the two organisations (RCom and Jio)," Ambani added.
RCom and Jio have pacts to share and trade spectrum. Besides, the two have tower and fibre-sharing agreements. The two telcos have synced their network operating centres, optic fibre service contracts and network maintenance functions.
In addition to this "virtual merger", RCom has already initiated an actual merger with Aircel, and is in merger talks with Sistema. After the Aircel merger, RCom says it would become one of the top telcos in 12 out of 22 telecom circles.
A three-way merger (with Sistema also) would create the second largest holder of spectrum in India, totalling 448 MHz across the 850, 900, 1,800 and 2,100 MHz bands.
The merger will lead to a reduction in RCom's overall debt by Rs 200 billion from its current debt of over Rs 420 billion, and Aircel's debt will come down by Rs 40 billion from the current Rs 234 billion.
RCom hopes to retire another Rs 160 billion through sale of its tower assets. At time of writing it was close to a deal with Brookfield, a Canadian fund.
Fitch Ratings sees Tata Telecom and Telenor India as candidates for consolidation in the coming months.
"Tata Tele does not have the required spectrum to launch 4G services. It is difficult for Tata Tele to defend its markets share".
On the prospects of Idea Cellular, Fitch says "Idea is an efficient player operating in the market. It may look at a merger with an incumbent in the long-run." There was speculations in the market that Idea Cellular and Vodafone may be exploring merger options. Idea, however has denied any such speculation and Vodafone has declined to comment.
Bharti Airtel launched a 4G data pack that matched Jio's data rates, effectively offering 1Gbps of data for Rs 50. It also rolled made international roaming rates extremely cheap, at Rs 3 per MB down from Rs 650/MB. Airtel also cut call charges to India and local in-country calls to Rs 3 per minutes across the US, UK, UAE, Canada and Singapore.
Vodafone India launched an offer for its SuperNet (3G and 4G) customers, offering them 9 GB of free data on purchase of 1 GB, for both pre- and post-paid customers till December 31: in effect, offering 10 GB data at the price of 1 GB 3G/4G data. Earlier, Vodafone had slashed effective data rates of its 4G/3G big internet packs for prepaid customers offering up to 67 per cent more benefits for the same price. It also announced a three-month free subscription for Vodafone Play (an app that offers videos, movies, TV shows and music).
VoLTE gets a boost
Bharti Airtel and Vodafone are preparing to deploy Voice over LTE (VoLTE) technology on their networks in association with Nokia to take on Reliance Jio. Idea Cellular is reportedly in "active talks" with the Finnish company to stitch a similar deal.
Jio had last year given a contract worth $100 million to Nokia for pan-India VoLTE deployment.
Both VoLTE and VoIP are IP services. VoLTE has a huge number of advantages over VoIP and by embracing VoLTE, telcos will arm themselves against the VoIP threat