The impact of the launch of Reliance Jio (RJio), a greenfield pan-Indian LTE operator, on the Indian telecommunications market is starting to unfold as leading operators report their financial and operational results for the quarter ending December 2016. Ovum’s World Cellular Information Services (WCIS) shows that total mobile revenue from the top three operators – Bharti Airtel, Vodafone India, and Idea Cellular – declined by an average 5.5% year-on-year in 4Q16. Within a few months of its launch, RJio has made a notable impact on India’s mobile market, attracting 70 million subscriptions. The operator’s early success is due to a combination of factors, including large-scale network investments, low-cost VoLTE devices, an extensive retail strategy, and disruptive service offerings. RJio has invested heavily across the entire telco ecosystem, to ensure its longevity: It is not just a discount operator that will eventually end up as an acquisition target. Its launch has been a catalyst for operator mergers and acquisitions.
Sending incumbent operators into a tailspin
RJio’s offer of “free for life” voice service and free unlimited data until March 2017 has brought unprecedented disruption to the Indian mobile market. The intense competitive pressure has pushed competitors to respond with deep discounts and increased data allowances to retain subscribers. As a result, blended ARPU for Bharti, Idea, and Vodafone declined 12.4%, 12.8%, and 11.7%, respectively, YoY in 4Q16. The drop in mobile revenues was primarily driven by a sharp fall in mobile data revenues as operators reported net losses in mobile data subscriptions. Idea Cellular’s nonvoice revenues declined 14.9% quarter-on-quarter (QoQ) in 4Q16, while its number of mobile broadband (3G and 4G) subscriptions declined to 35 million, from 37.8 million at end-3Q16. Bharti saw its mobile broadband subscriber base shrink to 37 million, from 41 million. Its nonvoice ARPU declined 13.6% YoY, and voice ARPU declined 11.6%. Together, the top three operators lost over 7 million mobile broadband subscriptions to RJio in three months, and their combined mobile revenues fell by an average 5.5% in the 12 months to end-December.
Bidding adieu to strong voice margins
Traditionally, Indian operators have relied on voice-only offers as their main cash cows. These were complemented with the sale of separate data offers for those using mobile data services. RJio, however, came to market with offers that bundle voice and data in the same pack, including free voice for life, in a market where voice accounted for 70% of operators’ mobile revenues. Commoditizing voice has led to a freefall in operator profit margins: Bharti’s EBITDA declined 3.3% YoY in 4Q16, and Idea Cellular suffered the worst impact, with EBITDA declining 24.1% YoY. The operator also booked its first net loss since it started operations in India, of INR3.8bn ($56.8m) in 4Q16. The cannibalization of voice revenues by over-the-top services and the continued discounting pressures on voice indicate that operators will soon have to bid adieu to their traditional strength in voice margins. While VoLTE can help lower the per-bit costs of voice carriage for incumbent operators, shifting the 80% of subscribers who are currently on GSM networks to LTE will take a few years.
Short-term pain but long-term gain as market consolidates
Declining voice and data rates will continue to dilute growth in mobile service revenue, and the shift toward combo plans led by RJio is expected to further hurt revenue and ARPU growth in the short term. But industry pricing will gain discipline over the long term once the market consolidates to three to five players. While Jio’s market launch will cause short-to-medium-term pain, it will result in long-term gain, since its launch has acted as a catalyst for operator M&A, which has been long overdue. India soon will have a new No. 1 telco with a 36% subscription share: Vodafone is in the process of merging with Idea, a move that will bump Bharti into the second spot, with a 25% share. Reliance Communications will come third, with a 17% share, after it completes its merger with Aircel. Among others, Telenor and Tata Teleservices – which together have over 100 million subscriptions – are also looking for buyers.
“RJio’s mega launch will help catalyze the Indian mobile data market,” TE0016-000315 (Sept 2016)
India Update, February 2016, TE0016-000305 (Feb 2016)
Inderpreet Kaur, Analyst, Asia Pacific