“Jio’s product is likely to gain traction – given the intention to launch an integrated product encompassing free messaging application, free Wi-Fi, cloud storage, digital news, entertainment and e-commerce services along with traditional voice and data services,” Fitch said. To cope, incumbent operators are likely to start offering discounts to their high-value customers soon, it added.
“Jio is likely to launch its cheaper and faster 4G-focussed data services in 1Q16 – having invested about $14 bn.. We expect the incumbent telcos to offer discounts and promotions to higher-ARPU subscribers in anticipation of Jio’s entry to prevent user attrition.”
At present, the big three operators charge about Rs 230 per GB of wireless data. It is expected that Jio will charge in the range of Rs 50-100 per GB — depending on usage. Only one operator — BSNL/MTNL — offers comparable data charges.
“We expect data tariffs to fall by at least 15%-20% as incumbents compete on price with Jio, which is likely to offer cheaper data tariffs to build market share. Voice ARPU will decline on lower usage as rising data usage will increasingly cannibalise voice.”
Jio’s announced deadline for launch is next month. It is speculated that it will launch of Dec 25, the birthday of Dhirubhai Ambani. (Meanwhile, Jio has already started testing its network.)
However, Fitch sees the launch in the first quarter of 2016.
It said Jio has the capacity to roll out in 900 cities in India, in addition to extensive sharing deals with RCom.
“Jio has an arrangement to share Rcom’s 800MHz/850MHz spectrum, 43,000 towers, 120,000km of inter-city fibre, and 70,000km of intra-city fibre network.”
The entry of the new operator will have substantial impact on the profits of existing operators such as Bharti Airtel, Vodafone and Idea Cellular, Fitch added.
“Industry blended tariff will fall as Jio’s entry will arrest the rise in data ARPU, despite rising data usage (2015 monthly average: 600MBs-700MBs), as voice ARPU will continue to fall on cannibalisation of voice by rising data usage. Voice usage will gradually decline; per user usage is among the highest in the world at 400 minutes per month.”
During year-to-date 2015, data revenue per user rose by around 25% while voice revenue per user fell by around 10%.
Though increasing data usage will be good news for big telcos, the drastic fall in data charges will mean that they will get less money from each subscriber even though their subscribers are using much more data than before.
Fitch expects each subscriber to generate only around Rs 160 per month next year (including voice and data), compared to 170 per month for the current year.
Now that the government has allowed companies to sell their auction-derived spectrum, some of the weaker companies will exit the field as competition hots up, Fitch said.
“Five to six operators will emerge from the industry shake-out. The top-four – Bharti Airtel Limited, Vodafone India, Idea Cellular and Reliance Communications Ltd – are likely to raise revenue market share to 80% (from 77% in 2015) as weaker ones exit. These are likely to acquire spectrum, from smaller loss- making telcos, to unclog their spectrum-starved networks,” it added.
Weaker unprofitable telcos including Videocon, Aircel Ltd and Tata could exit the industry as they make operating losses and lack key spectrum assets and financial flexibility to invest in data networks, Fitch said.
“Such telcos will seek M&A among themselves or trade their spectrum to larger telcos. We believe that Rcom’s acquisition of Sistema Shyam Teleservices may signal further M&A. Any large debt-funded M&A or spectrum purchase could be negative for the top-four telcos’ credit profiles.”