India disrupted

05 Apr 2017

India. What a great place to be a retail telecoms customer right now.

Serial disruptor Reliance Jio has upped the ante yet again and extended its Prime membership deadline until April 15, as well as extending its three-for-one month offer of data services.

Having already undercut the competition several times already with its VoLTE handset deals, Jio says it now has 72 million Prime customers, well above the 50 million most projected, and some analysts believe its going to go as high as 83 million by next year.

This is a huge bet by Jio, which is leaving at least $500 million in revenues on the table as a gamble of winning more customers and blowing its rivals out of the water over the longer term.

And not only are Jio customers getting a cheaper service, they are also getting the fastest. Telecom regulator TRAI announced this week that the average download speed on Jio’s Infocomm 4G network was the best in the market at 16.48 megabits per second.

The sharemarket liked it, and pushed Reliance shares to a nine year high, with some analysts breathlessly opining that at this rate, Jio would be ebitda break-even by 2018. Some are estimating that at this rate, Jio will have over 200 million paying customers by 2022.

This is all a very risky move by Jio and the stakes are very high, not just for itself but for the sustainability of the Indian mobile industry.

Undoubtedly, there will be casualties, or at least pain. We have already seen how competition and indebtedness are forcing industry consolidation as existing players assume defensive positions.

Jio’s aggressive strategy is a dilemma for the top incumbents Bharti Airtel, Vodafone India and Idea Cellular. They do not have a cashed up conglomerate like Reliance behind them, and debt is already an issue.

How can they afford to match Jio’s special offers? How can they afford not to? They risk severe customer churn if they don’t play Jio’s freebie game.

No wonder the Cellular Operators Association of India is warning that Jio’s pricing moves are bleeding the industry. Not only that, they are warning of a knock on impact on banks and investors with exposure to the telecoms industry.

None of this, of course, will bother Reliance Jio. The operator is set on a path of aggressive disruption and clearly doesn’t care what damage it causes to its competitors.

This is competition at its most brutal, and it will be fascinating to see how it reshapes one of the world’s fastest growing telecoms markets.

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