Analysts Agree Jio Is A Huge Deal Because WhatsApp, FB Already Killed Our Calling Habit

But many were caught by surprise

02/09/2016 5:53 PM IST | Updated 05/09/2016 12:58 PM IST
Reuters Staff / Reuters

On Thursday, Reliance Industries Chairman Mukesh Ambani's laid out an aggressive plan for its long awaited Jio offerings, announcing free calls, and "the lowest data rates in the world."

The 'always' free calling, and cheaper entry rates with generous data packages, has caught many analysts by surprise, who think Jio's entrance could be a game-changer in what is already one of the biggest telecom markets in the world.

"RJio has disrupted industry pricing more than we imagined, with consequences for incumbents likely more difficult than we expected," JPMorgan analyst Viju George has said.

Most of the existing players are likely to be hurt in the lower-tier segment where Jio is offering entry rates as cheap as ₹149, say analysts.

"The lowest ₹149 offer will appeal to the voice only consumers who will be able to make free voice calls on Jio's network. In our view, this is a surprise as the market was not expecting Jio to aggressively target the low-end market," said Bank of America Merill Lynch in a report.

For ₹499 per month, Jio is giving customers 4GB of data, 10GB data for ₹999.

Crisil Research attempted to quantify the price benefits that Jio brings: "Effectively, by opting for Reliance Jio plans, the average monthly mobile bill for a mid-to-high end subscriber could come down by 50-60 per cent," it said in a note.

As the announcement was made on Thursday, the stock price of rivals Bharti Airtel and Idea Cellular tumbled nine per cent and 11 per cent, respectively. While Vodafone saw its share price fall three per cent.

Expect more data bundling

No one doubts that demand for data is only set to increase as people get used to consuming more services over mobile phones, forcing telco players to bring in more attractive data offers.

Not least of these services are free calling and chatting apps such as Whatsapp, Skype, Facebook Messenger, and Hike Messenger, that are already quite popular. Hike Messenger, India's homegrown messaging app, recently became the newest unicorn, raising $175 million in funding led by Taiwan's Foxconn and Chinese firm and WeChat owner Tencent.

Credit Suisse analyst Sunil Tirumalai believes Jio's tariff structure, if it resonates with customers, could usher in the entry of bundled voice and data plans in the country.

"We have been concerned over Jio's launch for a couple of years, and the event is turning out to be as negative as we had feared," Tirumalai wrote in a note.

Suresh Mahadevan, managing director at UBS told Mint that in the long run, the entrance of Reliance Jio will expand the market significantly, ultimately benefiting Bharti Airtel and Idea Cellular as the demand for data increases. According to him, the launch of Jio is likely to result in more affordable 4G handsets and data prices.

"We believe India's telcos have a tremendous opportunity in data: data revenue has already grown 5-6x over the past 12 quarters for Airtel and Idea. We expect this trend to accelerate with the launch of R-Jio," Mahadevan said.

A Bloomberg analysis highlights that even for fixed lines, a growing number of companies have recalibrated their systems to allow phone calls over data using voice-over-Internet, or VoIP. Jio's cheap data bet may be a radical step for India, but it's only bringing it in line with the rest of the world.

In an interview with Hindu BusinessLine, Reliance Communications CEO for Consumer Business, Gurdeep Singh, said its 'Call Drops Se Chhutkara' app is hoping to cash in the growing preference for app calling and as voice calls move to data.

According to brokerage Religare Institutional Research, the RJio's launch will also put pressure on voice tariffs for incumbents, who would now be prodded to roll out more bundled plans.

"While we are already below consensus, we cut our margin estimates for Idea and Bharti further to factor in higher network costs, churn rates and marketing growth," the brokerage house told Financial Express.

With Reuters inputs

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