Reliance Jio Gains At The Cost Of Big Three Telcos, Industry At New Inflection Point

Reliance Jio appears to be gaining ground on its main rivals in telecom. The January 2018 subscriber data released by the Telecom Regulatory Authority of India (TRAI) shows that Mukesh Ambani’s Jio gained 8.3 million subscribers while its main rivals – Airtel and Vodafone-Idea – added less than four million between them. The government-owned BSNL-MTNL combine gained a smallish 0.4 million.

Taken together, this means the rest of the industry is growing at less than half the absolute rate of Jio, and even slower in percentage terms since their growth is on a larger base.

However, even this understates the real growth story – which is one of de-growth. In January, when three players had already announced their exits (Reliance Communications, Tata Tele and Telenor), and a fourth (Aircel) was rumoured to filing for bankruptcy, the players exiting the business lost a massive 28 million subscribers, but less than half of them took up subscriptions with the other incumbents.

While it is entirely possible that customers of the players bowing out of the race will take up new subscriptions in February (or may be in the process of porting), one broader point is difficult to miss: the industry shrank by a massive 15.5 million, and it is unlikely that all of them are in transit from one operator to another.

January 2018 must, therefore, rank as the first time when we have seen such a significant shrinkage in mobile services user base. In the month before, when too it was obvious that many players were in exit mode, there was a strong gain of nearly five million.

Another significant point worth noting is the very large desertions from Reliance Communications, which lost 21 million subscribers in January, when the other exiting players lost much less – Telenor lost 1.6 million, Aircel 3.49 million, Tatas 1.91 million. Clearly, RCom users may be the ones migrating fastest to Jio, given that Jio and RCom have a deal for the latter to sell its assets.

So, are we seeing a big shift in industry dynamics?

One will have to wait for a few more months to give a definitive answer to this question, but some tentative conclusions are possible.

- At 1.15 billion users in a country of 1.3 billion, we have reached close to saturation coverage, especially in urban areas. Growth is only possible in rural areas, where average revenues per user (ARPUs) will be sharply lower, and hence largely unremunerative.

- It is urban subscribers who are exiting in large numbers, with the entire drop of 15.5 million in January being reported here. Rural growth was flat. With urban teledensity at 159 per cent (which means each user has, on an average one-and-a-half phones), and rural at 56 per cent, one is likely to see a sharper drop in the urban user base, assuming people are rationalising their telecom expenses.

- The urban user base, which may have opted for multiple SIM cards when networks were weak and voice calls were the norm, may now shift to quality and data. Since only the Jio network is fully based on data, one can see it gaining ground further in future. The others, Airtel and Vodafone-Idea, are still in the process of rolling out 4G VoLTE networks to adjust to this demand shift.

- Urban-focused telecom players face another threat, from cable and fibre operators who offer better bandwidths at homes and offices. The battle for high-paying customers will now shift to those who can offer a cable at home and office, with multi-user Wi-Fi networks gaining traction. Monthly revenues of over Rs 1,000 per user are possible only with cables reaching the home.

- Government revenues have taken a knock. According to a Times of India report, with ARPUs dropping from an average of Rs 104 in the last quarter of calendar 2016 to Rs 79 in the corresponding quarter of 2017, government revenues from licence fees have dropped by nearly 19 per cent, spectrum usage earnings by 33 per cent and overall revenues from the telecom sector by 8.6 per cent. In the foreseeable future, the government should not expect any major growth in revenues till tariffs stabilise. That is still some way off as industry growth has slowed, and revenue increases have to come less from subscriber additions, and more from selling data to the same users.

In one line, 2018 is another Inflection point for the telecom industry, with the shift from quantity to quality – both in terms of services and user base – being critical for the industry’s future.