Analyzing the Reliance Jio Tariff Plans
After years of waiting, on September 1st, 2016, Reliance unveiled Jio in all its glory. The 42nd RIL AGM was a super hit and this must be the first time that people so keenly watched an AGM which is otherwise a dull event only watched by some shareholders, analysts etc. The excitement regarding the launch of Jio was through the roof. The only thing that can rival or command the same type of excitement are usually the Apple events.
During the event, Mukesh Ambani gave a lot of details such as Jio’s coverage, Digital Life etc. But honestly, the only thing that the telecom fans and the broader general public wanted to know was what the tariffs were. The Jio tariffs were revealed yesterday which left many people awe-struck initially. I have covered most aspects of Jio in the past, but tariff was something I could never cover. In this article, I’ll to dig deep and analyze the implications of Reliance Jio’s tariff plans.
1. Makes the voice market redundant
Despite data/mobile internet commanding a larger share of the revenue pie with every passing quarter, Indian telecom operators are still heavily dependent on voice. Most operators have around 65-75% of their total revenues made up of voice. Even when it comes to that, roaming revenues and blackout days are more profitable. Operators make hundreds of crores during blackout days and in roaming charges. Jio knows that and wants to hit telecom operators where it hurts the most.
During the presentation, Mukesh Ambani had said that he was willing to eliminate “pain points in the industry“. He did away with roaming charges and blackout days completely. The current incumbent operators get a lot of money from these two pain points. In fact, when TRAI had suggested to completely do away with roaming charges altogether, AVoID (Airtel, Vodafone, Idea) had resisted against that. Ultimately, though, roaming charges still remain although rate cutters are in place to reduce costs. By doing away with roaming and blackout days completely, Jio is in a way removing the icing on the voice cake.
But Jio isn’t content by removing the icing on the cake alone, Jio wants to remove the entire cake. To that effect, Jio has introduced unlimited voice calls absolutely free with any of its data packs/plans. This is absolutely disastrous for the incumbent operators. Currently, they charge people for all outgoing voice calls. With Jio making voice calls absolutely free, I think the incumbent operators might have to follow a similar path and bundle unlimited voice calls with their data plans.
One could argue that Jio’s users during the ongoing preview offer haven’t been able to make calls to that of Airtel, Vodafone and Idea. But the reason for that is because AVoID didn’t allocate the required POIs for the calls to connect. They justified the lack of POI allocation by saying that Jio was still in beta phase. But now that Jio has come up with tariffs, I wonder if they do that could any longer and get away with it without any consequences.
Certain operators have already made voice unlimited for free but that’s only in the most expensive postpaid plans that cost over Rs 1000. Jio, by comparison, is planning to make voice free and unlimited on even the smallest plans. I see no choice for AVoID but to simply start bundling unlimited voice for free with data packs of all sizes or else they’ll just see a mass exodus of subscribers towards Jio.
One could argue that even if AVoID were to make outgoing calls completely free on any data pack, they would still receive money from call termination charges. But TRAI has already floated a consultation paper recommending that termination charges should be made zero. Even if the TRAI consultation paper isn’t accepted, as time passes, termination charges would naturally boil down to a very small and insignificant amount.
Termination charges, or rather the money obtained from termination charges is based upon the ratio of incoming call volume between two networks. The network which has the higher ratio is the net receiver of termination charges while the network which has the lower ratio has to pay for termination charges. Basically, let’s say that an operator A has received 4 mins of calls from operator B while operator B has received just 2 mins of call from A, then the incoming call ratio between A and B is 4:2 = 2:1. Now A clearly has the higher ratio and hence is the net receiver of termination charges.
Now the volume of incoming calls on a network depends on two things. First being the number of subscribers on that network and the second being the calling rates on the network. Currently, Airtel, Vodafone and Idea have significant subscriber base in India which means incoming calls on their network is pretty high. Secondly, Airtel, Vodafone and Idea have higher calling tariffs which mean people try and use cheaper networks such as Telenor etc to make outgoing calls whenever possible. The combination of the high subscriber base and high calling rates means that as of now, AVoID operators are net receivers in most cases against other operators.
However with outgoing now being free and unlimited by Jio, and if the same is followed by AVoID, people will no longer prioritize placing outgoing calls on one network over another as both of them are free. Secondly, as time passes by, I expect India to be a market where 4-5 operators have 20-25% market share each. Now if there’s no reason to prioritize calling on one network over another and if subscriber bases are in close vicinity to each other, then no particular operator will be able to gain from termination charges in a meaningful way.
If I were to be the CEO of any one of the AVoID telecom operators, then free voice calls would definitely have me sweating because as much as 70-75% of my revenue becomes redundant.
2. Data rates
Confusion regarding PayG (pay as you go) charges
While giving his speech at AGM, Mukesh Ambani had said that “The current base rates of telecom operators lead to a pricing of Rs 4000-10,000 per gigabyte of data. Our effective base rate is just 5p/MB”. This made me think that Mukesh was saying that while current telecom operators have a pay as you go pricing of 4p-10p/KB, the pay as you go pricing of Jio would be only 5p/MB. Taking that into consideration, I became really optimistic about Jio’s pricing. What I had presumed was that if the pay as you go pricing is really as cheap as 5p/MB then people who are poor would be able to use 100MB of data a month for as low as Rs 5, and this would really spur data uptake in India.
Turns out that Mukesh Ambani has made an incorrect comparison in his speech. He compared the pay as you go pricing of AVoID operators to the per MB pricing of Jio’s data packs. In reality, Jio’s PayG pricing without any data packs turns out to be 0.5p/10KB. This is still much cheaper than the current pricing of AVoID operators, but nowhere near the 5p/MB Mr.Ambani had mentioned on stage. Currently, on the basis of the PAYG pricing of 0.5p/KB, one MB turns out to be 50p. This is still very affordable as a 10 MB data session on an e-commerce site would cost only Rs 5.
Data plans are perfect for very high-end and very low-end users, but horrible for the ones in the middle
Looking at Jio’s pricing, two things are clear. These plans are pretty great for heavy calling users and people that download a lot. But these plans aren’t all that great for streaming. I know many who spend thousands on calling each month, yet use meager amounts of data. My dad, for example, pays Rs 1200 every month and consumes just 100-200MB of data primarily for Whatsapp and Emails. There are several people who call a lot and use minimal amounts of data, primarily for activities like Whatsapp and Facebook. For these people, Jio’s Rs 150 plan is amazing as they get unlimited calls and 300MB of data. In case they run out of that 300MB, they can always top up with 1GB of data as shown below in Jio’s top up plans.
As you can see in the above image, one could just recharge for Rs 151 and activate a 1GB data pack. Jio is a boon for users who make a lot of calls. Just by paying Rs 300 or so, a person can get 1.3GB of data and unlimited calling.
Bringing back BSNL’s night unlimited plans
BSNL had broadband plans that would only allow limited usage during the day but allowed unlimited usage at night between 12 am and 6 am at 2 Mbps. The plan was a super hit with Indian teenagers, but BSNL discontinued the plan on July 1st, 2014. When BSNL had discontinued night unlimited, Chetan S of TelecomTalk had written an article titled “End of a golden era: BSNL to do away with night unlimited plans“. The article registered as many as 427 comments which indicate the kind of following night unlimited plans had. I understand some people might find it lame that I’m using the number of comments as a proxy for measuring interest in a particular plan, but given the fact that BSNL doesn’t disclose data on the number of subscribers of various plans, this is the best bet as of now.
Anyhow, what BSNL had eradicated in July 2014, Jio has brought it back in September 2016. All plans except for the Rs 149 plan come with unlimited night downloading between 2am to 5am. People have been arguing that this is just three hours of downloading compared to BSNL’s 6-hour windows. But the point to remember here is that Jio’s speeds are multiple times higher than that of BSNL. BSNL capped speeds at 2 Mbps for 6 Hrs. On Jio by comparison, people can get as much as 8 Mbps or even higher for 3 hrs. Assuming you have several files to download, then the amount of downloading you can do at 8Mbps and above for 3 hrs is definitely more than the downloading that can be done at 2Mbps for 6 hrs.
Jio has resurrected what was one of the most loved aspects of BSNL broadband and the best part is that Jio has given night unlimited between 2am and 5am even on plans starting as low as Rs 19 a day.
Jio is perfect for heavy voice users and heavy downloaders that can schedule their downloads at night. But the place where Jio isn’t perfect is for medium usage customers. Jio’s data allocation for day usage compared to the price they are charging isn’t all that great. It’s just a few percentage points cheaper than that of Airtel and Vodafone. This makes streaming a difficult proposition on Jio. Unlike downloads, streaming is real time and taking into consideration the amount of data allocated for each data plan, streaming at high resolution doesn’t seem to be a possibility unless a person is willing to spend Rs 2499 and above which is pretty much the scenario even now.
Jio is definitely trying to have its ARPU pretty high. After Rs 149, the next plan directly jumps to Rs 499 in case of packs with 28-days validity. There is no option for people who spend between Rs 200-400 a month on mobile usage. This is a big irony because the segment that Jio is avoiding is its biggest potential market. According to a Telecom Talk survey , people spending between Rs 300-500 on cellular services are most likely to port to Jio and the vry same segment is where Jio has absolutely no offerings. I understand Jio’s willingness to maintain a high ARPU, but in my opinion, there should be a pack priced at Rs 349 to bridge the gap between the two packs.
In essence, Jio has solid plans for calling and downloading, but people who love streaming videos and downloading stuff in real time aren’t in for much of a treat from Jio.
Is unlimited voice sustainable?
Currently, three-fourths of the revenue of telecom companies come from voice. Reducing this to zero is going to create a big upset in the industry. Of course, AVoID can block porting or subscribers to Jio or not allocate POIs, but I wonder how long they can continue to do that as legal ramifications might have to be faced at some point of time. But even for Jio to be profitable by not charging for voice calls, they need at least 100 million subscribers with an ARPU of around Rs 500. Surely Jio has priced its packs in such a manner that ARPU comes above Rs 500, but whether Jio can achieve those 100 million subscribers is the real question. It is entirely possible that Jio itself might not be able to realize their revenue targets/profitability targets by not charging for voice, in which case pricing power might come back to AVOID. But if Jio is profitable only by selling data, then AVoID operators would soon have to figure how to restructure their operations and offering to run their ship in such a way that they’re able to completely let go legacy voice revenue and that’s going to be no easy task.
I’ll just wrap up by saying that Jio is pretty determined in its mission to kill AVoID’s current cash cow. By making voice free, Jio makes the entire voice market redundant in a way and restructures the market to one that’s heavily dependent on data for revenues. This new data market has a lot of scope to grow and Jio’s network in this market is bigger and better than others.