Airtel Versus VI Versus Jio: Differentiation on Strategies

 

The Indian Telecom space has shrunk into a 4-player market – with stronger private players, Airtel & Jio pitted against financially weaker players, Vodafone Idea (VI) & BSNL + MTNL in which the govt., incidentally, has stakes too, Other-players like Tata Teleservices, ACT, Tata Play, Hathway etc. continue to operate in significant yet specialized spaces. Jio meanwhile differentiates itself with Airtel via its Stand Alone (SA) 5G rollout, while Airtel’s NSA (Non-Stand Alone) rollout has led to cost optimization.

Even as the stronger players are competing in the 5G space, VI continues to suffer a funding winter, impeding even its 4G expansion drive. BSNL, meanwhile, has secured a GoM (Group of Ministers) clearance, in May 2023, to issue a PO (Purchase Order) to TCS for supplying a home grown 4G equipment solution, manufactured by Tejas Networks, for 1 lakh sites & managing the same over the next 10 years; 20% of the sites shall be deployed by state run ITI. This “Made in India” initiative, if successful, along with keeping Chinese gear manufacturers like Huawei & ZTE out of the Indian market, is expected to aid national security.

But with 5G equipment of established players like Nokia, Ericsson etc. being deployed by the Stronger 2 - even while the weaker 2 are forced to focus only on 4G roll out - & with BSNL nudged to deploy an untested 4G solution, it is safe to posit a shift in Market shares due to the non-level playing field thus created.

The other notable data points regarding the Telecom landscape are as follows:

1.       Return on Equity (ROE) for even profitable telcos is in single digits demanding an increase in tariffs. A steady increase towards an ARPU of Rs 300 - from under Rs 200 now - appears to be WIP (Work in Progress).

2.       Telecom penetration in Urban markets has crossed 130% while remaining shy of the 60% mark in rural.  Markets like Mumbai at 79% VLR (Visitor Location Register) – the lowest across the country – or Delhi at 82% but with a high 272% telecom penetration should nudge Telcos into evaluating quality gross adds to reduce Customer Acquisition Costs (CAC).

3.       Over the period Mar 2022 to Mar 23, while Wireline subscriber nos. showed growth across circles. wireless base has grown only across Metros & Category-C circles, while degrowing across Category A & B circles. As growth in metros is largely rotational churn – alluded to in point 2 above - focus on Category C circles like Bihar, with a 55% telecom penetration is a logical strategy to be implemented albeit after conducting a cost benefit analysis. Category B Circles like UP (East & West) & MP with 66% penetration could find acquisition focus.

4.       Of the 114-crore wireless & around 3 cr. Indian wireline base, there are 84 cr. broad band customers – a large potential base waiting for innovative e-Commerce & media disruptions.

5.       No large System Integrators (SIs) or consulting companies work with a majority of Indian SMBs (Small & Medium Businesses) – around 7 cr. in nos., accounting for around 30% of GDP. They are, therefore, looking out for a trusted partner to offer them bundled solutions & Telcos are uniquely positioned to make it happen to accelerate digitalization.

6.       On Broadband, Telcos are working on a capex light model of leaning on the Local Cable Operators (LCOs) to achieve a faster rollout velocity.

7.       Device shipments are slowing down because of the rise on prices & hence replacement cycles are extending. This could impact 5G rollout plans.

Against such background, it would be interesting to evaluate the strategies being pursued by different players.

Telco Wise Strategies:

Airtel has decided to focus on the following 5 vectors:

·         Focus on Quality Customers:  The top 150 towns in the country account for 40% of the Telecom market & over 80% of the Postpaid, Broadband & Home convergence products & 95% of the B2B market. Airtel has also identified 60,000 high potential villages of the total 6.4 lakh villages in India, apart from the top 150 towns, for a disproportionate focus.  

o   Rural penetration continues with the focus on smartphone share & not necessarily 2G customer acquisitions for ARPU upsides.

o   Increase in the minimum pricing plan from Rs 99 to Rs 155 is as much an attempt at an ARPU increase as it is to accelerate SIM consolidation, as multi sim customers also have wallet share constraints.

o   33% of the postpaid base has a 5G handset against a 10% 5G penetration of the total base of 33.5 crores; therefore, postpaid business shall ride on 5G apart from attracting customers into the 599 “Family plan” to accelerate further.

o   Faster rollout of new home passes & convergence of broadband, linear content & Xstream – aggregating 20 of the 35 odd OTT apps under one plan. Airtel already has 3 crore homes, across these 150 cities, using one or more of its services.

o   Omnichannel focus – across own stores, installation teams, digital marketing focus - on these 150 cities, to drive synergies in sim delivery or broadband & DTH installations. Expansion of single seater own stores across key cities to reach the customer directly.

o   Account management of top 500 businesses – mapping of key decision makers, understanding their needs & solving their problems by bringing a full suite of solutions.

·         Obsession with customer experience: Drive down interactions across customer touch points – store, call center, web, app, social media etc. – as every interaction is interpreted as company’s fault over lack of understanding consumer needs awaiting correction.

·         Build Digital Businesses: Airtel currently offers strong digital offerings which include CPaaS, Airtel IQ, Cloud, SDWAN & Aps. Partnership with Axis Bank & DMI Finance & API integration with the Airtel Thanks app thereof, has helped Airtel Finance to offer instant loan disbursals, flexible EMI options & credit cards to customers, through a proprietary ML & AI product with an assured end-to-end post purchase digital experience management.

·         War on Waste:

o   Network costs: 66,500 sites identified for specific actions around energy, rental & reengineering costs reduction. NSA (Non-Stand Alone) 5G technology has been an effective cost optimization strategy – as it gives them a 30% higher coverage as compared to 5G SA (Stand Alone).

o   Sales cost: Identify & address inefficient channels – up to a retailer level - with high costs of gross addition or high churn.

o   Capex: Stopped capacity investments on 4G as a 30% traffic offload observed on a site where 5G has been launched.

·         Capex: Investments on wiring up towers, data centers & home passes would continue in the years ahead even while wireless 5G investments could tail off post this year.

Vodafone Idea, on the contrary, faced with severe funding headwinds, impeding investments, is into the following strategy:

·         Improve cash generation in existing businesses & drive monetization of new revenue streams:

o   Increase ARPU by driving 4G penetration: As on Mar 2023, VI 4G covers over 100 crores of Indian population. As only 54% of its 22.59 crore base is 4G enabled, it promotes the differentiated “Hero unlimited plan” to prepaid consumers which offers unlimited night data & weekend data rollover across TV & Digital. Likewise, it has rolled out incentives for 2G customers to upgrade to smartphones by offering cashbacks on monthly recharges & 0% EMI on device financing in partnership with OEMs & NBFCs.

o   Postpaid: While consumer postpaid base is stable, M2M postpaid segment has been growing; postpaid now accounts for around 10% of its base. VI Max data plan which offers more data, entertainment & privileges is promoted.

o   Refarming 3G spectrum into 4G: Company closed 26700 sites during the year & most of these sites now has one carrier of 2100 MHz deployed for 4G

o   Digitalize customer touchpoints & distribution channels.

o   Strengthened partnerships & integrated all content on the VI app across Music, Videos, Gaming, Education & Jobs - freeing consumers from downloading multiple apps - & improving revenue & profitability too.

·         Focused investments on 17 priority circles accounting for 98% of its revenues & 93% of Industry revenue.

o   Acquired 850 MHz of mid band 5G spectrum (3300 MHz) in its 17 priority circles and 5,350 MHz mmWave 5G (26 GHz) spectrum in 16 circles, with a plan to introduce 5G services when funding is in place.

o   Acquiring additional 4G spectrum across 1800 MHz, 2100 MHz and 2500 MHz bands in 3 circles of Andhra Pradesh, Karnataka and Punjab.

·         Drive Enterprise business from Telco to Tech Co:

o   Continues to strengthen engagement with customers with a range of offerings like Vi Secure, Integrated IoT, Managed SIP, and Vi Business Plus bundled mobility offering.

o   Industry first IoT lab to test & certify IoT devices, built in partnership with C-DOT, for promoting standardization & interoperability as per ”OneM2M” standard in the country.

·         Provide superior customer experience:

o   As per TRAI “My Call” app for 25 of the 29 months between Nov 2020 to Mar 2023, VI had the highest rated voice quality.

o   They may also be working towards a device agnostic strategy based on the insight that while feature phone works only on 2G, some smartphone customers use no / low data & hence the need to address consumer need devoid of device.

·         Drive Differentiation through partnerships:

o   On VI app a new channel “BYTES” launched in partnership with NDTV for providing snackable content, gaming launched in partnership with OnMobile to play daily tournaments, & eSports on VI Games in partnership with eSports startup Gamerji.

·         Use more, Pay More:

o    VI is not too keen on increasing the minimum pricing plan fearing greater churn; instead, it is evaluating tweaking the unlimited plans by charging more from consumers using more.

Jio, which had disrupted the Telecom industry by launching 4G earlier, has gone for an

·         Aggressive 5G Stand Alone (SA) drive, even as it continues to push for a “2G Mukt Bharat”.

o   For Market share gains in mobility

o   Enhanced customer engagement via enhanced video experience & ARPU upside thereof.

o   Accelerate Fixed Wireless Access (FWA) called “Airfibre“ for Homes & SMBs. Launched the 198 plan nudging customers, even with a broadband connection of competition, to use it as a back-up to avoid missing out on the action during the IPL season. While this connection plays a role similar to a 2^nd sim in mobility, the idea is to win over those customers eventually away from competition. More traction for this plan has been seen in Tier 2/3 towns though because of affordability.

o   Deployment platform solutions at scale for Enterprises.

·         Aggression on Home Broadband :

o   Plans to target 10 cr. homes in 2-3 years on its dual FTTH JioFiber & FWA AirFiber strategy.

o   Use the 5G capacity secured via the 700Mhz spectrum to offer FWA broadband on demand unlike wired broadband which is dependent on availability of home passes.

·         Attack the Postpaid stronghold of competition:

o   It is now focusing more on the Postpaid segment – traditionally the strength of its competitors by launching the “Family plan” whose benefits can be shared by a family of 4.

·         End to End solutions for Enterprises & SMBs:

o   SMBs are not sophisticated buyers unlike large Enterprises & hence are looking out for an end-to-end solution – connectivity, devices, managed services, cloud enables applications. Jio plans aim to attract SMB loyalty by offering a one stop shop proposition to grow customer revenues, operational efficiencies & profitability.

o    It has made some acquisitions like C-Square Pharmacy Management Software too in pursuit of such a strategy. it bundles the software along with connectivity solutions to mall hospitals & clinics to manage their operations with the added advantage of ordering from one of their sister companies “Netmeds” to can make additional margins.

·         Disrupt the Media space via “Glass to Glass” video broadcasting solutions: Jio plans broadcasting via “Jio Cinema” from the “glass” of the camera, capturing action on the field, to the “glass” pf the viewing screen across various form factors – laptops, mobiles, tablets, TVs etc. Customers given a choice to choose a camera angle of their choice etc. are unique differentiators which provide for a truly interactive media experience very different from traditional broadcasting. Jio has won streaming rights for IPL & is thus developing new properties too. The traditional entertainment space via broadcasting and other media is likely to transform into a truly interactive and streaming based media consumption.

Conclusion

The Telecom industry has been carved into 2 groups – the cash rich telcos like Airtel & Jio – with the money & the muscle to aggressively expand 5G - & their poor Country cousins – BSNL & VI which cannot.

The richer Telcos could focus on driving down FWA cost convergence towards FTTH costs & accelerate wireless broadband penetration & ARPU upsides thereof via bundled media offers. 5G use cases development for enterprises continues for revenue upsides even as end to end solutions are offered to SMBs - who not being sophisticated buyers like Enterprises - are looking for a trusted partner – a role telcos are uniquely placed to fulfill.

Since customer experience across usage of videos, e-Mail, social media etc. across 4G or 5G is nearly indistinguishable, poorer operators would be advised to strengthen their 4G networks, where available, to protect their existing base; they should keep their 2G prices competitive too & not follow the lead of their richer counterparts in increasing their minimum pricing.

Consumer groups & the Regulators would be keenly watching these moves as they would be concerned about the risks of an evolving duopoly.

Indian Telecom Trends 2022

 

A brutal predatory price war, in 2016, aided arguably by a biased regulator, led to the Telecom Industry consolidation. The number of operators in India’s thriving Telecom sector shrank from 12 to 4 – Airtel, Vodafone – Idea (VI), Reliance Jio & state run BSNL – MTNL. The Supreme Court judgement on Adjusted Gross Revenues (AGR) forced the promoters of VI – Britain based Vodafone Plc. & Kumar Mangalam Birla – to throw in the towel, triggering a state mounted rescue – with Government of India (GOI) taking a 33% stake in VI in lieu of Rs 16100 cr. – a part of pending dues. This has, in effect, reduced the industry to 2  telcos – completely in the private sector – along with other private players like Tata Tele Business services that now offer only enterprise services - post selling their mobility vertical to Airtel.  Increased NPAs (Non Performing Assets) of the Indian Banking sector was the natural collateral damage lost in the din of consumer delight while enjoying low cost data. The debilitating price war in the sector has since ended, leading to a welcome rise in ARPUs (Average Revenue Per User), but the following trends could impact the revival of the sector, especially when rewards in digital advertising, e-Health & Mobile education are a slow burn.

(1)Clash between Technology Firms & Traditional Telecom Service Providers (TSPs) :  Indian Cabinet Approval, in June, for the setting up of private captive networks, to spur innovations in Industry 4.0 applications in M2M (Machine to Machine communications), IoT (Internet of Things), Artificial Intelligence (AI) across Auto, Agriculture, Healthcare, Energy & other sectors, invited the ire of the TSPs. This appears to have been prompted by Broadband India Forum (BIF) -  boasting of members such as TCS, Cisco, Google, Facebook, Qualcomm, Intel  etc. & interestingly Indus Towers & One Web owned by Airtel  as members. However, “administrative allocation of spectrum” has been opposed by COAI (Cellular Operators Association of India) with TSPs (Airtel, Jio & VI)  as members, as it goes against the principle of a “level playing field” – offering, effectively, a back door entry to technology players to provide 5G services & solutions without regulatory compliance & levies, otherwise paid by the TSPs. This would diminish revenues, affecting the business case of 5G, they allege. They are against “direct spectrum allocation” to System Integrators & intermediaries as it runs the risk of spectrum fragmentation, viability of the 5G business case, apart from having serious national security implications.

BIF’s President T V Ramachandran lambasted the ‘level playing field demand” & averred that “no mature regulator in the world imposed regulation on a player with no or minimal market share” as they cannot abuse their position as private 5G networks are for “self consumption” alone – will not sell services or earn revenues. Tech Mahindra’s CP Gurnani opined that if GOI wants to make ‘ the country more technology competitive, more productive & citizen service oriented, they should give it (spectrum) free for a few years” & enterprises – hospitals, factories to Industrial townships - should be free to go to any service provider –TSPs or Technology companies - & ‘not pay any licence fees”. Manufacturing, auto, oil & gas sector are extremely bullish on adoption of private networks worldwide he added & argued in favour of disintermediation by eliminating the TSP layer

It is a fact though that launch of “private 5G networks” would lead to the drop in revenues of existing TSPs, translating into a drop in revenues to GOI who earns a fixed % as revenue share. Why is GOI making such a move?; Is it an attempt  to prompt TSPs to bid higher in the impending spectrum auctions – leading to higher GOI revenues - & accelerating the launch of 5G – which the, otherwise, debt strained TSPs would have liked to be pushed down the road?

(2)Entry of New Players: Adani, meanwhile, surprisingly, has thrown its hat into the ring of spectrum auctions, scheduled for 26^th July 2022, instead of opting for the cheaper option of securing a direct assigned spectrum, without paying any license fee & entry fee, under the “captive non-public network (CNPN) category. COAI welcomed the move. Adani Data Networks – a 100% subsidiary of Adani Enterprises - that incubates new businesses – has secured a letter of intent (LOI) by Department of Telecommunications (DOT) for granting Unified access license with authorization of National Long Distance (NLD) & International Long Distance (ILD)for & Internet service Provider - ISP (B) for the Gujarat circle. Under ISP (A), a company can operate in all the 22 circles across the country while under ISP (C) licence they can operate in a part of a circle. The company has data centres across the county & is currently paying TSPs “carrier charges” which it could potentially save by launching its own services & create an additional revenue stream by carrying the data & voice traffic of other Telcos & enterprises.

Bank of America opines that lacklustre ROI, inadequate spectrum, low potential for differentiation & low tariffs could render infructuous any business case for a non 4G player in consumer mobility.  Having already entered into a definitive agreement to acquire Cement maker Holcim’s stake in ACC & Ambuja Cements at $10.5 billion deal, Adani is unlikely to make a bid for the beleaguered VI, especially with Telecom ARPU’s trending around $2 only. Adani press statement which reads ““We are participating in the 5G spectrum auction to provide private network solutions along with enhanced cyber-security in the airport, ports and logistics, power generation, transmission, distribution, and various manufacturing operations.” helped clear the airs of speculation. As against an Earnest Money Deposit (EMD) of Jio (Rs14000 cr.), Airtel (5500 cr. ) & VI (2200 cr.), Adani at Rs 100 cr. only signalled limited bidding.

During the last Spectrum auctions, in Mar 21, EMD of Rs 13475 cr. attracted bids Rs 77815 cr. (5.77X); as per an Economic Times Now )report, the multiple in generally 5 -6 X. We can therefore expect bids this year with EMD of Rs 21800 to be in the 1 - 1.25 lakh cr. range.

While 72GHZ of spectrum in the low frequency (600, 700, 800, 900, 1800, 2100, 2300, 2500 MHZ), mid frequency C Band (3.3-3.67 GHZ) & High frequency (26GHZ) are up for auctions for a 20 year tenure, the greatest interest would be focussed on the mid frequency as most of the 5G ecosystem has developed around the same apart from the 26 GHZ airways used for the captive private networks – priced low at Rs 7 cr. per MHZ for pan India spectrum; 700 MHz, albeit costly, grants better coverage. Lower frequencies are used for “coverage”, with TSPs progressively using graded frequencies up the spectrum for “capacity”. Payment of zero Spectrum Usage Charge (SUC), on spectrum acquired in the impending auctions, provides a significant relief to the industry.

(3)Government of India (GOI) Targets Chinese Companies: Chinese companies, ZTE & Huawei, are still to secure the “Trusted sources” tag – a mandatory requirement for supply of network equipment; their Indian, US & European counterparts, meanwhile, have secured the same, pushing Chinese companies out of contention on supplying 5G gear to telcos The offices of Huawei were searched in Feb & Huawei in Aug 2021 by the Tax authorities on suspicion of tax evasion. Furthermore, GOI issued a lookout notice on Huawei India Chief Li Xiongwei, in May 2022, which prevented him from flying out to Bangkok to attend a business meeting. These steps allude to a decisive move, by GOI, at decoupling to protect “security” interests. Chinese handset manufacturer – Xioami, Oppo Mobiles, etc. enjoying a dominant markets share, in India, too are facing similar pressures; they have been served notices by the IT department for custom duty evasion, non addition of “ royalty & license fees” in the transaction value of imports & inflated payments against receipt of technical services from related parties outside India.

Telcos are falling in line with govt. policy despite initial murmurs of protest, on increased consumer prices, consequent to replacement of cutting edge Chinese gear with costlier western products. GOI has banned Chinese apps but not Chinese gear but regulatory barriers could serve the purpose. Chinese gear is, however, blocked in US, UK & Sweden & Canada has accused Chinese firms of spying. In Nov 2021 the US Federal Communication Commission (FCC) revoked the licence of China Telecom to provide telco services on security concerns, continuing with their March 2021 decision to revoke authority to 3 other Chinese firms -  China Unicom, Pacific Networks & ComNet & disapproval, in 2019,  of China Mobile’s application, in provide telecom services between the US & foreign destinations.

(4)Telecom Signal interference with Aircraft Altimeters & Telescopes: Airlines for America & Aerospace Industries Association,  in Jan 2022, complained that the  FCC has failed to explain why it rejected the “detrimental impact of interference” of the C band 3.7GHz licences on radio altimeters. They are not seeking a full stop of new 5G services but only a stay on roll out in designated locations at 135 airports. “Airlines will not be able to rely on radio altimeters for numerous flight procedures & thus will not be able to land at certain airports” its filing read. Cellular Telecommunications Industry Association (CTIA), however, debunked the complaint & alluded to 5G operating safely in over 40 countries without harmful interference & FCC rejection of interference claims 2 years ago after exhaustive review.

Meanwhile, in India, Giant Meter wave Radio Telescope (GMRT) Pune, a project of the Department of Atomic Energy, operates in the 100 -1500 MHz frequency bandwidth has been complaining of signal interference from telecom towers operating in the 800-900 MHz band corrupting data quality. The solution is to operate the towers, within the GMRT protection zone, in the 1800 MHz band.

Conclusion:

The revival in the telecom sector’s fortunes, via consolidation, would be impacted by the entry of new players like Adani – in case they decide to enter into the consumer space unlike captive private networks alone; their $10.5 billion bid for Cement Maker Holcim’s Indian assets could restrict their Telecom ambitions in the near term. VI though, continues to remain an acquisition target. The Cabinet approval for the administrative allocation of spectrum, based on likely intense lobbying by the BIF members like TCS, L&T, Google, Amazon etc. has the potential of reducing govt. revenues, if processed; the announcement appears more an attempt to spur, an otherwise, recalcitrant TSPs, burdened by a huge debt overhang, delaying 5G rollout, to act quickly, to protect their turfs & deny space to Tech firms.  

Sino-Indian decoupling of telecom gear, by denying “trusted sources tag” to Chinese manufacturers like Huawei & ZTE is, perhaps, work in progress, with India collaborating with its Western counterparts. But since gear from western players too comes with its own Trojan horses, “atmanirbharta” in gear manufacture, courtesy the PLI (Production Linked Incentive) scheme, is the new forward.

 

 

References

https://www.theweek.in/news/biz-tech/2022/07/14/telecom-companies-say-allowing-captive-networks-will-make-their-5g-rollout-unviable.html

https://www.bloomberg.com/opinion/articles/2022-07-13/gautam-adani-gets-into-india-s-telecom-sector-the-realm-of-rival-mukesh-ambani

https://trak.in/tags/business/2022/07/15/adani-group-will-launch-telecom-services-from-this-state-5g-will-be-the-foundation/

https://www.fiercewireless.com/regulatory/china-bites-back-after-fcc-china-telecom-order

https://www.fiercewireless.com/wireless/airlines-file-emergency-petition-stop-5g-c-band-deployment-near-airports

https://indianexpress.com/article/cities/pune/now-gmrt-faces-signal-interference-from-airtel-and-other-telecom-operators-8034043/

 

Indian Telecom Industry: At the crossroads

The Indian Telecom industry has de-grown by 7.35% in GR (Gross revenue) & 15.6% in AGR (Adjusted Gross Revenue) in the FY 2016-17 over the previous year courtesy the Jio launch that has hastened consolidation & accelerated layoffs. The Voda-Idea merger announcement pushed the consolidated entity into the numero-uno position in RMS (Revenue Market Share) while the Airtel-Tata propinquity is a strategic attempt to narrow the gap by the dethroned leader; Aircel-MTS -Reliance Communications merger completes the picture with BSNL-MTNL being the PSU challenger. It shall henceforth be a 5 player game.

Jio’s launched officially in Sept ’16 & by end May ‘17 had quickly accumulated over 11.72 crore customers of the total mobile broadband usage base of 27.28 crores (43%). India with a total mobile base of 118 crores & wireless tele-density of 91.74% leaves very little space for customers acquisitions, new to the category.  Wireless internet user base, end Mar ‘17, was 40.06 crores – of which 14.5 crore is a narrow-band base, albeit shrinking - indicating that 78 crore users are pure voice customers. The industry’s VLR fig of 86.34% also indicates a steady increase in customer quality & retention although it varies across operators with Idea highest at 101% & MTNL lowest at 47%.

Jio Strategy

Jio’s brand promise of perpetually charging only for data & not for voice is a clever attempt at doing what they know that competition cannot replicate. Their plans: Unlimited voice at Rs 149/- & unlimited voice + data of 1GB per day at 309 for 28 days simplifies tariffs in an over-communicated world; however, their net revenues are likely to be low, perhaps negative, since the IUC(Interconnect charges) at 14 paise per min (PPM) for Mobile calls has to be paid to the recipient operator. Had Jio launched a starter pack at Rs 49/- with all voice calls at 14 PPM, it would have been a better proposition despite denying them the opportunity to showcase “voice free”. Hence their attempts to push the regulator to remove IUC charges would continue despite protestations from the other operators.

Post securing a large 4G base in wave 1, Jio attempted to target the Hi Value 2G/3G customers in wave 2, vide JioFi launch that provided 150Mbps upload & 50Mbps download speeds for upto 32 devices - smartphones, laptops, tablets & smart TVs - with a heavy duty 2300mAh battery that promised a 5-6 hour surf backup – thereby providing mobility while relieving the need for an electrical connection. At a cost of Rs 1999/- - much lower than the cost of a new 4G handset - you could make Video and HD Voice calls, send SMS and set up even (5+1) Audio & (3+1) Video conference calls with the Jio4GVoice app. They now seem poised to target the 78 crores pure voice customers, under wave 3, with the launch of a 4G handset at Rs 499 - 999/- which would involve a heavy subsidy of over Rs 1000/- per handset; since it is likely to be a pure 4G handset – not supporting 2G/3G - a customer is unlikely to "unlock" the device & shift to competition till the time their 4G networks too are not ubiquitous which is at least a year away. Lower the subsidy, higher the chances of targeting the replacement market alone reducing the size of the pie.

Looking back, the “Monsoon hungama” offer, of 2003 - when Rcom offered handsets at Rs 501/- -  it can logically be presumed that the proposed offer too would attract subscribers at the "bottom of the pyramid"; the corollary to such an induction is that it would put off Hi Value customers. By launching JioFi before the proposed roll out of the low cost handset, Jio appears to have factored this in; however, it would be difficult to make a Hi-Value iPhone customer sustain the Jio connection comfortable in the knowledge that a daily wager too uses the same brand; jio, therefore, could face a brand related challenge.  Likewise, Jio’s Lyf handsets lack robust service centres & that could impede "customer experience" & consequently "word of mouth".

Wave 4, would concentrate on broadband; reliance is already testing its broadband services of 100 Mbps & 100GB in key cities; armed with an MSO (Multiple System Operator) licence it would use the same infrastructure to attack the cable business as well. Expect therefore a consolidation in the cable industry as well.

Jio would be better advised consolidating penetration in "family" as a unit by offering a quad core product – broadband with a cable connection plus 2 mobile connections at Rs 1499/-; their attempts at rate revision by offering unlimited voice with 1GB data per day for 2 months at 399/- would help in ARPU accretion & earn analysts praise in the expectant hope that full charging would commence by Q3 FY 2017-18.

The Strategy of the Incumbents

Airtel-Tata & Voda-Idea could follow a different strategy of segmented offers taking advantage of their entrenched UnR (Usage & retention) machinery. They currently appear to be operating on the following 3 broad customer segments

(a)Customers not showing a dip in usage: Manage customer loyalty through better service with a disproportionate focus to "ring-fence" Hi value prepaid, postpaid mobile & broadband customers. The postpaid product of Jio lacks teeth & that helps the incumbents.

(b)For customers showing a dip in usage:

(1) Offer them full talk time offers & rate cutters to induce higher usage

(2If the above fails & customers show a persistent dip in usage over consecutive months, a Rs 349 plan that serves unlimited voice + 1GB data per day - a marginal premium over the Rs 309 plan of Jio.

(C)Customers who have migrated to Jio: Match Jio on voice & data while protecting the SMS revenue – despite the SMS segment shrinking.

The incumbents also appear to be veering towards the following broad strategies

(a)Retain the advantage of top ups as low as Rs10/- which Jio lacks; students with low pocket money or daily wagers have been traditionally seen to prefer low sachet packs.

(b)Don’t burden their distributors with handset sales in a bid to preserve the channel’s working capital; this is a wise attempt at avoiding the risks of technological obsolescence, non-receipt of price drop differentials to the channel & the consequent channel angst. Instead, allow handset operators to push 4G handset sales vide “bundled offers”. This is inherently a cheaper option as compared to handset subsidy.

(c)Get aggressive in the post-paid & enterprise segment where Jio lacks an effective product & service back up. Airtel – Tata merger would be attractive on this count alone despite Tata Tele being burdened with a Rs 30,000 crore debt; of course bundling Tata Sky & Tata Communications - which are otherwise profitable entities - with Tata Tele in the merger talks makes it a win-win. The combined entity can strengthen their hold on the 2.41 crore customer wire line segment, where Bharti has a 16% share to Tata’s 7.6% against the dominant PSU (BSNL+MTNL) share of 69.6%; other private players have no significant play in this segment yet.

Conclusion

Mergers however induce its challenges of manpower rationalization, channel resizing & reopening of vendor negotiations & that could change the RMS stack rankings. While Airtel- Tata, Idea-Voda & Jio have the financial muscle to sustain a long bloody game, the same cannot be said of BSNL-MTNL or the Reliance – MTN – Aircel combine. A 3 player scenario eventually seems to be a distinct reality; if idea-voda delay investments on fibre it could well be a 2 player game. While players shall regain pricing power, with further consolidation, it is unlikely to happen soon. Therefore, expect the industry to seek & secure concessions from the govt. on reduction of SUC (Spectrum Usage charge) & rationalization of licence fees instalments; a rethink on net neutrality in a bid to gain a revenue share from the OTT (Over the top) players like Facebook could be their other demand.

It would be safe to assume that the next 6 quarters would see a lot of action & bloodshed in this sector eliminating a lot of professional careers & corporate brands in the bargain.

Telecom: Why was Reliance Jio’s launch delayed?

Reliance Jio is poised to launch its telecom operations this year, 5 years after it acquired 95% of Infotel Broadband Services from Himachal Futuristic (HFCL).  Infotel had bid Rs 12848 crores, across all the 22 telecom circles, for 20MHz of BWA spectrum, in 2010; Reliance shall pay the fee post acquisition. The company strengthened its spectrum assets by participating in the subsequent auctions & bid for Rs 11054 crore in 2014 & Rs 10077 crore in 2015 to win additional spectrum in the 800 MHz & 1800 MHz bands. The total investment of the company in the telecom venture - spectrum & network - is huge at about Rs 70000 crores. The launch, however, has been repeatedly delayed & employee attrition made analysts sit up & take notice.

That begs the question: Why the delay? Reliance Jio started off with the advantage of being the only BWA operator with a pan India presence. Since voice was not allowed on BWA earlier, it attracted a spectrum usage charge (SUC) of 1% only against 3 - 8% paid by operators with spectrum in the 800, 900, 1800 & 2100 MHz range, a clear strategic advantage. Analysts expected Jio to launch immediately to take advantage of its dominant position. However it was not to be.

Airtel was the first to rollout 4G networks on the 2300 MHz band & experienced technological limitation of signal transmission & indoor coverage issues. Unlike the west where urban structures - largely made of glass - ensured easier signal transmission, the majoritarian use of concrete in Indian urban settings inhibited signal propagation. Reliance, too, must have encountered a similar experience. The weak customer acquisitions by Airtel in the 4 circles it launched 4G operations must have convinced Reliance that postponement is a better strategy.

The other problem was the nascent device ecosystem on 4G. In 2003, Reliance - in its earlier telecom avatar - had circumvented the device ecosystem issue on CDMA by acquiring handsets in bulk, at a huge discount, courtesy it’s legendary “negotiation skills” & covered themselves further through insurance. Costs of deploying such a strategy would be high today. 

Reliance, therefore, delayed the launch but secured a regulatory approval for voice too on BWA - despite protests by other operators who saw it as an unfair advantage. The decision to provide a seamless 4G coverage across the 3 frequency bands - it currently owns - came much later. There is one problem through: except for 4 circles – Mumbai, MP, Assam & NE – it does not have contiguous airwaves of 5 MHz in the 800 MHz band which needs correction either through “spectrum swap” with other operators or through govt. notification on “spectrum trading”; Reliance would prefer the former.

Reliance, tempered from its first experience, is trying a lean & mean organizational model to make its second coming into telecom a success. RIL (Reliance Industries Ltd) has been restructured into 2 divisions - Industrial & Consumer - & the Retail & Telecom ventures fall under the latter. A common CSD (Customer service & Delivery) department for its consumer division is planned giving its telecom venture the advantage of lower apportioned costs. A common HR function across Retail & Jio too has been formalized. The company’s e-commerce venture too could be tasked to sweat both the Retail & Jio assets. Sharing of network with Reliance Communications reduces costs further.

With structures in place the company could, tentatively, launch its operations in June 2015. For details on the likely entry strategy see

http://meetrk.blogspot.in/2015/04/telecom-what-could-be-reliance-jios.html

The entire country is now waiting with bated breath the launch of Reliance Jio.

Telecom: What could be Reliance Jio’s Entry Strategy?

After a long 5 year hiatus - between acquisition of Infotel Broadband services in 2010 & this day - Reliance Jio has successfully put its organization & network in place. The launch date of Reliance Jio services has been a matter of much speculation through. Grapevine has it that a launch, in June 2015, in 5 cities – Delhi, Mumbai, Ahmedabad, Nagpur & Lucknow - is likely; the buzz has now shifted on the likely "entry strategy".  

Aggressive Voice Tariffs: Should the entry strategy be voice based or data based?

While the last few years have seen a spurt in data usage, only about 15% of Telco revenues accrue from data today. The potential, to grow to at least 40% of revenues is indisputable  for countries like the US, Japan, UK & even some  telcos in SE Asia have already breached the fig.

India today sells about 80 million smartphones per annum & has a smartphone base of about 150 million. The TRAI figs. by end Feb 2015: 960 million mobile users: 81 million mobile broadband users: & over 250 million internet users. It can thus be inferred that 700 million consumers are predominant voice users & in a high telecom penetration scenario Reliance has no other option but to launch an aggressive voice plan to churn customers from existing operators & gain an impressive revenue market share (RMS). This suggested strategy is buttressed by historical evidence too.

Circa 2009, Tata DoCoMo’s successful launch was courtesy a 1 paisa per second voice plan which transformed the industry forever from a Pay Per minute (PPM) to a Pay per second (PPS) industry, sacrificing “Granularity”, which otherwise helped the industry gain an incremental 15-18% in revenues. While bloody “price wars” continued & prices dropped, further to 1paise per 2 seconds (30 Paisa per minute), it helped Tata gain a decent share.  

The TRAI notification of reducing the mobile terminating cost paid to 14 PPM from 20 PPM & eliminating the same, altogether, for landline calls gives further leeway to Reliance Jio since it shall hit the revenues of its competitors. Reliance launch plan could take advantage of this opportunity. Recommended voice plans: Pay Rs 49/- per month & make all calls at 15 paisa per min (1 paisa per 4 sec); or Pay 69 & get unlimited on net calls free (to quickly create a community) & other calls at 15PPM.

Else the strategy should be to launch "Voice Free" & charge only for data. Just as Tata disrupted the data market by launching 2G data at Rs 49/- per GB, Jio could launch a similar priced product for 4G.

For the over 250 million data users a VoLTE plan would be in order. As per a Credit Suisse report consumers could get VoLTE call at 24 PPM while a pure voice call on legacy networks is at 70 PPM. Expect Reliance to drop data rates to disrupt the VoLTE space too. Also expect a bundled device strategy to target High ARPU data users who would be offered the following additional services. 

Social Networking: The user base, in India, of Facebook – the largest social media app - is about 115 million while Whatsapp – the largest messenger app - is about 70 million. The rise in social media & messenger services has hit the sms revenues of all operators; telcos, therefore, have been demanding a revenue share from OTT (over the Top) players like Facebook, Whatsapp, Skype, Viber etc. Such a demand is, however, unlikely to be conceded, since the concept of “net neutrality” is gaining ground; consumer activism in India represented through 1 million e-mails sent to TRAI condemning “Airtel Zero” might preclude OTT players from agreeing for a "revenue share" now.

“When you can’t beat them, join them” is an old adage. Kavin Bharti Mittal – son of Airtel promoter, Sunil Mittal had launched a messenger service “HIKE” in 2012 which has succeeded in accumulating over 20 million customers. Reliance too has joined the bandwagon by launching “Jio Chat” in April 2015. Expect an interesting battle on messenger services in future. Surprisingly, other Indian telecom players are yet to make their moves in this space; they are content launching Whatsapp or a Facebook pack alone which does ensure data revenues but denies them the long term advantage of accumulating the additional wealth of consumer information that could have been profitably monetized. Are they missing the plot?

Gaming on demand: South Korea’s SK telecom in June 2014 has launched UHD (Ultra High Definition) “gaming on demand” & “video on demand” products” UHD offers 4 times the clarity of traditional HD viewing. Unlike the current system, customers can install games directly into their smartphones or PCs & enjoy games using their smartphones by receiving real-time playing screen from the cloud server while the real game is being played. Expect Reliance to replicate the same.

Video streaming of sports & movies: Jio recently gave customers at Wankhede stadium a free experience of 4G in a game involving the IPL team “Mumbai Indians” – owned too, by the group. On entering the stadium, customers were prompted to give their name & mobile no, followed by which they received a verification code to log in. The company shall provide the same facility for all the 7 matches involving Mumbai Indians at the same stadium. The stadium has a capacity of 33500 which means by the end of this exercise, Jio would have not only tested load on its network but also secured data on over 2 lakh cricket crazy fans of Mumbai to be specifically targeted, later, with relevant content & services.

Jio has been ceaselessly working on strengthening its content portfolio. It bought Network 18 which owns Eenadu (all channels except Eenadu Telugu), CNBC TV18, CNN IBN, Colours etc. The company plans to launch “Jio Play” an app that shall stream all TV channels & also provide latent recording of 7 days. A "finance app" is also planned which perhaps shall leverage the synergies with CNBC TV 18 & Awaz.

The principle of live streaming can be extended further to include musical shows, events, sports, arti’s or sevas at places of worship which would be a good revenue spinner. Subscription based services like Music on demand (MoD) or Video on Demand (VOD) would also be deployed. Would this kill pure play DTH players? Likely. If reliance procures a MSO license & uses its fibre network to offer cable services it shall disrupt both the cable & DTH industries.

Plans to reduce “Digital Divide”: SK telecom had launched a year-long tour that includes world’s first “Virtual Reality Museum”- developed in partnership with National Museum of Korea – with the tour stopped at 20 locations in total, to bridge Korea’s digital divide through hands-on experience. Reliance should launch something similar.

The Dhirubhai Ambani International School, which provides education from LKG to Std. 12^th, must have over the years developed content & pedagogy which can be used to connect schools across the country - through a “digital school project” running on a Jio backbone - under a franchisee model. Going forward, it can potentially be dovetailed into the “skill India" project thereby creating a revenue stream under the “education” vertical.

The HN Reliance Foundation & Research centre’s expertise should be the backbone to build on the “Mobile health” strategies of the company.  Launching a mobile "Health app" could be the first step.

M2M (Machine-to-Machine) communications or Internet Of Things (IOT): The ubiquitous use of smart devices in every sector - health, energy, automotive, manufacturing, logistics etc.- is a discerning trend.  Consumers shall have the luxury of remotely switching on/off the A/C, microwave ovens etc. or keep a live watch of a child left in the care of nannies at home.  There are many exciting possibilities & it will be interesting to see if Reliance can imaginatively combine its assets in “reliance digital” stores with its M2M initiatives to get premium customers. Child protection devices like AT&T’s FiLiP can also be sold from these stores.

While it is technically possible through M2M for a farmer to remotely handle pump-sets for optimum water usage or maintain the parameters in eel rearing farms, such an initiative might not attract immediate traction in India; a rural push is therefore some time away.

Location based services: Over time Reliance Jio with huge customers acquisitions would be sitting on a wealth of data. It can then analyse mobile travel patterns & the consumption trajectories of individuals to offer location based relevant content & services. Advertisers would find “Mobile advertising”- that helps target a specific individual – a far attractive proposition as compared to the “shotgun” approach of TV advertising.

With close to a billion mobile users, the Indian mobile payments market has much untapped potential. The recent 25% stake acquisition by Alibaba’s Jack Ma in Paytm heralds such a possibility. Reliance should launch its own Payment gateway so that customers attracted  to retail areas through “mobile advertising” would be make to pay using its “cashless” mobile wallet thereby gaining another revenue stream. Just as Alibaba deploys AliPay, Jio can similarly use its own mobile wallet for making payments for goods bought on its e-commerce venture. Over time this opens up the possibility of applying for a banking licence too.

Apps: Reliance should initiate “youth connect” through conduct of “appathons” in colleges. The best apps selected need to be marketed in a "revenue share" format, thereby encouraging "crowdsourcing". Encouraging employees to create apps with promising ideas to be funded in a “start-up mode” shall yield good dividends; this model is successfully deployed in AT&T.

1.      Convert Phone 2 a Microphone: AT&T has developed an app that will let people use their Android and iPhone smartphones connected via a Wi-Fi or cellular data connection to a laptop, which when plugged into a speaker system, can convert the phone turns into a microphone. The app could be used by conference organizers, educational institutions, or hotels that host events, office holiday parties or Karaoke parties. It completely eliminates the need for a wireless speaker systems

2.      Troubleshooting: AT&T's engineers in Israel have worked closely with the company's Digital Care team to develop a new app to be used by home broadband users on their smartphones that will let them take a picture and instantly share it with a technician to seek help regarding troubleshooting network setups. Instead of technicians, blindly, trying to figure out whether cables are even hooked to the right ports, they'll now be able to see the setup. The technicians will also be able to send back pictures and diagrams through the app, which will show customers how they can fix their problems. This ensures quick troubleshooting – enhancing experience - & eliminates a technician visit – reducing costs.

The other strategies that jio could tap on are elaborated in my article whose link follows.

http://meetrk.blogspot.in/2015/04/telecom-what-should-telcos-do.html

Conclusion

Reliance in its first telecom entry made a splash through the “Monsoon Hungama” offer in 2003. Both critics as well as admirers are waiting to see if a similar magic shall be replicated once gain. With Mukesh Ambani at the helm, don’t rule out the magic.