Undercutting rivals in telecom to continue till RJio starts billing

The company will start billing its customers only after its existing users port their numbers to Jio

Undercutting one another in voice and data tariffs is expected to continue as long as Reliance Jio carries on with the freebies it started giving in order to penetrate the $40 billion telecom sector.

Experts say profits of firms will continue to tail off until Reliance Jio starts commercial operations.

The company will start billing its customers only after its existing users port their numbers to Reliance Jio and become its primary customers, a Mumbai-based analyst said.

At present, Reliance Jio’s more than 50 million users comprise customers of Airtel, Vodafone and Idea Cellular, and they use RJio as a subsidiary service provider.

The shift to being primary RJio customers was not likely to happen soon and the company might persist with its free voice and data services till June 30, the analyst said.

Rates might not go up for at least a year but the incumbents — Bharti Airtel, Vodafone India and Idea Cellular — have deep pockets and can cushion the competition pressure from Reliance Jio, according to another analyst.

But to assume that the industry will remain unaffected would be incorrect.

Reliance Jio's impact was visible on the third-quarter results of Bharti Airtel. Jio’s aggressive pricing strategy forced the country’s largest telecom company to bring down voice and data tariffs, which dragged down Airtel's profits by more than 50% to Rs 504 crore, the lowest in four years.

“The telecom industry, which has a debt of Rs 3.5 lakh crore, has been affected. One player offering freebies may impact the sustainability of the industry,” said Prashant Singhal, Global Telecommunications leader, EY.

Mahesh Uppal, an independent telecom expert, said: “Jio's cut throat prices are seriously hurting the revenues of incumbent firms, who have no option but to match them. They would hope that these helps expand the still fledgling data markets and allow them to make up for the lost revenues soon.” 

Reliance Jio launched its services on September 5, 2016, and continued with its free data and voice offers till December. Subsequently, it extended the free usage period till March 31, 2017.

On January 3, Airtel announced free data for 12 months, worth up to Rs 9,000, to subscribers who switch to the Airtel 4G network.

Vodafone and Idea Cellular followed suit with their share of freebies. The former offered unlimited 3G or 4G data for an hour at a starting price of Rs 16 for pre- and post-paid customers, while the latter announced an increase in the data usage limit across select unlimited calling plans while offering 3GB additional mobile broadband for customers who upgrade to new 4G handsets.