Reliance Industries Ltd (RIL)'s telecom entry might have two effects, says a Credit Suisse report. In the long term, it might make the market very competitive and in the short term, the firm might make the 2G auction price aggressive.
Industry experts are of the view that bidding in the 2G auctions might be lacklustre due to the high reserve prices proposed by the government. The Mukesh Ambani-led RIL's entry, however, could change the game.
“The entry of a large, well-capitalised player with a significant differentiator only increases the likelihood of auction prices being bid up aggressively,” said the Credit Suisse report. The research unit of the bank believes the company that has a pan-India licence for wimax spectrum, will not just restrict to data business and will also enter the voice segment.
Entering the voice business could increase the addressable market for RIL. A data-only LTE strategy would lead to small market with a size of around $750 million (Rs 4,162 crore) revenues. It might not be enough to build a business case, given the fact that it paid $2.5 billion (Rs 13,875 crore) for the spectrum , in 2010. Added with the advantage of bundling both voice and data could increase its market manifold, the report suggests.
This data and voice strategy sustained competitive pressure might dent the market share of existing top operators like Bharti Airtel and Idea Cellular, as market competition might become tougher. “We model RIL to start with a six per cent revenue/subscriber market share of the addressable segment, gradually going up to 30 per cent by the fifth year,” the report said.
In overall market share terms, it could translate to around 11 per cent market share by fifth year and 18 per cent by the 10th year. “Bharti could soon lose the tag of having the ‘strongest balance sheet in Indian telecom’, and the investor comfort that comes with this,” said Credit Suisse.
The bank expects RIL's LTE modem and dongle to sell at lower price points than that of Bharti’s which sell at Rs 7,500-8,000 a piece. “It is not impossible for RIL Infotel to price an LTE dongle at a 35 per cent discount to Bharti’s current price or at around Rs 5,000,” it said.
“We assume RIL Infotel will launch with data tariffs at 8p/MB. Our assumption thus places RIL Infotel at a 75 per cent discount to Bharti’s current data tariffs,” Credit Suisse said. The report also expects RIL to cover around 33-40 per cent nationwide population within three to five years of launch, respectively. This includes an aggressive 100 per cent population coverage in the top 15 cities, the cream of the data market.
