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Years ago, before the Ambani brothers had split, they had adopted disruptive pricing — Reliance Communications entered the market, offering ‘Monsoon Hungama’, a plan that offered a mobile phone and talk-time for just Rs 501. Reliance drew millions of consumers, but the move also drove the company to underwrite the large losses they made on the scheme.
Can Reliance Jio do the same this time? Vodafone chief Marten Pieters says rates have to rise, else investment and services will suffer. But others say Reliance Jio will have no choice but to go for disruptive pricing to woo existing customers.
“I don’t expect any immediate impact on rates. But the environment may change when a new player enters a circle or across India, as new players are expected to start disruptive pricing for customer acquisition,” said Jaideep Ghosh, partner, KPMG India.
A leading telecom company has prepared its plans based on the assumption initially, the Mukesh Ambani-controlled Reliance Jio will target drawing five-eight per cent of the current subscriber base of 700 million accounted for by incumbent operators in each city and circle. It will also target new customers who don’t have mobile phones, though this isn’t exactly the segment that will opt for data.
“They will adopt a disruptive price strategy---reducing rates for voice---and create a churn that could put pressure on current operators, and then woo them by data applications at a much lower rate. They have nothing to lose by reducing voice tariffs. For instance, incumbent operators depend on 85 per cent of their revenues from voice; about 90 per cent of their subscriber base uses voice alone. If they are forced to reduce voice rates to retain customers, they will lose money,” said the telecom operator.
Vendors working with Reliance Jio say at Rs 750-1,000 for 10 GB, 3G rates are expensive and have limited usage, with only 65 million customers. So, Reliance Jio’s strategy will be to reduce data rates and increase usage volumes. It plans to increase usage by offering an array of applications. Also, it has designed dongles, set-top boxes and Wi-Fi routers to reduce the cost of entry. “You can convert any mobile phone that has Wi-Fi into a LTE (long-term evolution) phone by carrying a small Wi-Fi router in your pocket and get high speeds; you don’t need a 4G LTE phone,” says a vendor.
Other operators say initially, the company will target the top 75 cities in the country that account for about 55 per cent of the overall mobile subscriber base.
