 "Reliance Jio tariff plans: 'Game changer' for some, 'gamble' for others")
The tariff plans announced by Reliance Jio will be a game changer for the telecom industry and are expected to drive greater adoption across data and voice segments but it might also impact the profitability and sustainability of existing operators.
Some analysts have welcomed the announcement of Jio launching full bouquet of its services for all customers from September 5 and lauded the tariff plans which make voice free and much lower data charges.
“Reliance industries announced launch of Reliance Jio on 5th of September in its AGM today while delivering knockout punch on pricing of voice and data tariffs which everyone was waiting for. The launch of Reliance Jio was much awaited and is very much welcome,” Dharmesh Kant Head - Retail Research, Motilal Oswal Securities said.
He added there is no doubt that tariff plans for voice and data is going to be a game changer for telecom industry.
While making voice free, Jio has announced that it will offer 1 GB of data for Rs 50 as against the prevailing rate of Rs 250 for 1 GB. Jio will have price points starting from Rs 19 for the occasional data user to a monthly plan Rs 149 and the highest being Rs 4,999 plan for heavy data users.
Prashant Singhal, Global Telecommunication Leader, EY said for a price sensitive market like India, launch of affordable data services and free voice calls is indeed a welcome step and it is expected to drive greater data adoption across segments.
He, however, said that the telecom sector is currently reeling under financial stress, high debt burden and slowdown in revenue growth and further decline in data tariffs may impact operators ’ profitability and sustainability.
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“Telcos form the backbone of ‘Digital India’ and they need to make higher investments in data network. Any market erosion, at this stage, may impact the outcome of the upcoming Rs 800 bn spectrum auction critical for the Digital India vision,” he added.
On the other hand, there are a few analysts who say this is the biggest gamble Reliance has ever played.
In a note, Samco Securities says: "Reliance’s big bang launch of Jio is certainly a boon for the masses of the country but has left a big question mark on the possibilities for shareholder wealth creation in the long term. The Investments to the tune of Rs 150,000 crore needs to generate at least 11.5 per cent which is the implicit historical returns on its investments that it had delivered in the past. This is the biggest gamble Reliance has played ever in its history the success of which will certainly decide the long term prospects for the company."
According to India Ratings & Research, Jio's move will worsen telecos debt profile. "Data tariffs are bound to see a major correction due to disruptive launch of Jio, while the benefits from higher data volumes as well as subscriber growth will be back-ended. The existing top telcos (Bharti Airtel, Vodafone and Idea) have already undertaken pre-emptive price cuts by offering higher data volumes for similar pricing to retain their customers. The operators’ debt profile will deteriorate in FY17."