Reliance Jio effect: Grim future for small telcos like Aircel, Telenor India

KOLKATA: Reliance Jio’s entry with disruptive offers of free voice calls, roaming and possibly the world’s cheapest data plans will push smaller mobile service providers such as Aircel, Telenor India, Tata Teleservices and Reliance Communications to the fringes, if not to exit altogether, analysts say

“In the medium term, Reliance Jio will ensure the likes of Aircel, Telenor India, Tata Teleservices and RCom will exit,” said a UBS note.

This position was seconded by brokerage BNP Paribas, which said Jio’s big bang entry is likely to “expedite exit of weaker operators dependent on cheap voice and not invested in data networks. These (weaker operators) still account for 25% of industry revenue and a likely 35%-40% volume share, given their low pricing.”

Deutsche Bank said weaker players with constrained financials will not be able to replicate Jio’s aggressive offers, and hence would eventually cede revenue-share to the new 4G entrant. It expects the telecom arm of Reliance Industries to corner 10% revenue share of the mobile market in five years.


CHALLENGES IN CUSTOMER ACQUISITION






HSBC expects Jio’s pricing plans to trigger an accelerated consolidation in the fragmented voice market, adding that spectrum and balance sheet limitations of GSM new entrants such as RCom, Aircel, Telenor and Tata Teleservices would enable incumbent carriers to benefit from improvements in voice average revenue per user (ARPU) improvements at the lower end of the market.




Bank of America Merrill Lynch expects all telcos to be vulnerable to Jio’s free voice offer but, like most brokerages, believes that “subscribers with the smaller, marginal telcos (with a combined market share of 26%) will lead consolidation of the tail. We consider RCom relatively more vulnerable in listed telcos, as we find highend dongle subs and lowend price sensitive subs churning out faster to avail of Jio’s services.”

According to analysts, the voice market is significantly fragmented due to the dual SIM phenomenon, especially since new GSM entrants like Aircel, RCom, Telenor and Tata Tele collectively command 31% of minutes’ market share.

HSBC analyst Rajiv Sharma expects accelerated consolidation to happen in the voice market that will ring in a single SIM market in the coming days.

Shares of RCom recouped intraday losses to close flat at `49.20 on the BSE on Friday, while Tata Tele (Maharashtra), listed unit of Tata Tele, closed down 1% at Rs 6.13.