Jio launch sees huge response; rates may be cut further

Reliance Jio Infocomm's official launch of services saw crowds thronging retail outlets for 4G SIM cards across India on Monday, with some being frustrated by stocks running out and activation issues.

According to an Economic Times report, experts said the telecom unit of Reliance Industries may look to further slash rates or even extend its free offer on data after 1 January 2017, to boost customer volumes.

That will cause more financial pain to rivals Bharti Airtel, Vodafone India and Idea Cellular by making it tougher for them to retain high-revenue data customers. Jio's future 4G pricing strategy, they said, would hinge on the pace of customer acquisitions during its launch offer of free voice and data services from 5 September to 31 December.

An extension of the welcome offer is not being ruled out in Jio's stated ambition of obtaining 100 million customers in the shortest possible span of time. Reliance chairman Mukesh Ambani said last week that voice would be free for life on Jio. In the immediate term, Jio will also launch special packages for high-end customers and enterprises.

A person aware of the development said "it will offer home care solutions such as switching on and off devices digitally, car solutions for tracking their movements, and premium content such as exclusive movies and shows."

The 4G entrant's appetite to sustain its disruptive pricing model, according to experts, stems from the fact that Jio is bankrolled by parent Reliance Industries, which is sitting on a cash pile of nearly Rs91,000 crore. "Its free voice calls and dirt-cheap data tariffs offer might not seem sustainable in the long run, but one mustn't forget that Jio derives its strength from RIL's balance sheet, and can easily treat its pricing model as a business development cost to poach quality customers from incumbents over a period of time," said an analyst at a leading foreign brokerage.

Airtel's former chief executive officer CEO Sanjay Kapoor said Jio's future tariff strategy "is contingent on how many quality customers it acquires by January 1" and how soon it's able to sort out traffic imbalances and reduce potential interconnect payouts to incumbents.

Huge crowds
Jio's much-awaited launch attracted huge crowds on Monday outside Reliance Digital and Xpress mini outlets nationwide, with thousands queuing up for free 4G SIMs from early morning.

"The biggest draw of Jio's 4G SIM is free mobile internet till 31 December," said a Jio customer in Kolkata. But SIM cards ran out at many locations and technical glitches hindered activations. Some stores even issued tokens to angry customers, promising delivery as late as 15 October.

Jio declined to reveal details of its pan-India 4G SIM sales on Day 1as of press time. In Chennai, faster activations through the Aadhaar-based digital verification process than the manual route prompted customers to rush home and fetch their cards.

While Jio's connections come free under the Welcome Offer, some independent retail stores in Delhi were charging Rs300-1,000 for a new SIM without promise of activation.

Regardless of initial teething troubles, Morgan Stanley expects the launch offer to help Jio amass a sizeable base of revenue-paying subscribers.

Some analysts expect incumbent carriers to "wait and watch", while others see them cutting call charges soon to hold on to high-end ARPU-generating customers and protect their voice turf, which is their mainstay, accounting for over 75 per cent of revenue.

ARPU is average revenue per user. Experts believe the incumbents will also need to lower data rates, by increasing usage limits. At Jio's current pricing, the per megabit realisation is 11-12 paise, while incumbents realise 20-21 paise.

"This will need to come down to 14-16 paise, which will be about 20-25 per cent discount from current data rates, but still at a 20-25 per cent premium to Jio, which will be sufficient to stop the exodus of top customers," said a senior executive at a leading mobile carrier.

This is critical since nearly 30 per cent of customers generate 70 per cent of revenue for the incumbents and they are the users that will need to be prevented from moving to Jio.