It has been over four months since Jio publicly launched its services in India on September 5, 2016. Initial expectations were that Jio would close its free offer by December 31, 2016, and start charging customers from January 1, 2017. However, in a surprise move, Jio extended its free offer all the way till March 31, 2017. Most of the operators who were expecting at least some kind of stability to come back in the market are now once again left in a bizarre position.

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The impact on the Q2 2017 financials of the top telecom operators has been mild as Jio’s free offer started only by September 5 and most telecom operators have their second quarter limited to the end of September. However, I expect Jio’s free offer to take a toll on Q3 2017 significantly. The numbers for this quarter are not out yet but when they do come, it would be interesting to see the kind of impact they have managed to have. Considering all the cheap talk time and data that the operators are giving out, expect a sharp decline in ARPM (Average Revenue per Minute) and ARPMB (Average revenue per MB).

Now that the first three months of Jio’s free offer have been over, the results are mixed. The lowering of data cap from January 1, 2017, has had a mixed result with some people reporting an improvement in speeds and others still having to deal with low speeds. As far as I have seen, people who are latched onto Band 40, i.e., the 2300 MHz band have had a pretty decent improvement in speed. On the other hand, people who are on Band 3 and Band 5, i.e. 1800 MHz and 850 MHz bands, are still having low speeds.

100 million users: an unrealistic target?

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I still think that Jio should have closed its free offer by December 31, 2016. I understand that Jio wants to have at least 100 million subscribers but the fact is that the addressable market for 4G is still pretty restricted in India. I am reasonably sure that by the time Jio finished 2016, it was already having 70 million subscribers on its network, just 30 shy of its 100 million goal.

However, there is little chance of Jio actually getting 100 million 4G subscribers in India even with the free offer having being extended all the way till March. It is important to note that subscribers are not the same as the number of SIM cards sold. Whatever Jio is reporting as of now in the name of “subscribers” is just the total numbers of SIMs they have managed to sell.

Forget about the fact that once the free offer ends, a lot of Jio SIMs are going to become redundant, for Jio to have 100 million 4G subscribers even under the free offer, it needs at least 85-90 million unique 4G handsets to be present in the market. One way to know the number of 4G handsets present in the market is to add up the shipments for the past several quarters but with different analytical companies having different methods to evaluate the shipments, this is not possible.

4G handsets in India: what an “Idea”, sirji

Another method is to rely on operator-provided data. I have gone through the financial results of the top three telecom operators in India and luckily Idea has provided statistics about how many 4G handsets the company has on its network. As of Q2 2017, Idea had about 29.76 million 3G/4G subscribers on its network and out of those 29.76 million subscribers, around 19 million had 4G compatible handsets. This gives a brief glimpse of what the total 4G handsets in India maybe.

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The total number 3G/4G subscribers in India as of October 31, 2016, is 199.90 million. If we are to take Idea’s numbers as a reference then the total number of 4G handsets in India might be around 127.65 million. I know some people would object to me taking Idea’s numbers as the reference point as different operators have different demographics but Idea has a proper representation of all demographics in India. Neither is it very much Category A and metro-focussed like Vodafone and Airtel nor is it very much Category B and Category C focussed like Aircel and Reliance. It is somewhere in the middle. Also, apart from Idea, no one has disclosed such results and there is no proper way of knowing for sure. As of now, our best bet is to assume that the total number of 4G handsets in India lie somewhere between 120-130 million.

Jio’s target of 100 million then starts looking a little unrealistic. Jio’s 100 million target means having a market share of around 80 percent assuming everyone who has a 4G smartphone starts using 4G which again is unrealistic. Even if I am to add a couple of million for data cards, the numbers simply do not add up. While Jio does seem to have a higher market share in 4G as of now considering that its offers are free, once it starts charging for data and actually starts competing with other players in the market, maintaining an 80 percent market share seems impossible. Please note that port out from operators to Jio has been very low and most are using it as a secondary SIM. Naturally, once the free offer ends, a lot of people would revert to using 3G/4G on their primary SIM.

I sincerely feel that the management at Jio needs to set a more realistic target. Probably try and cut down the 100 million target to something like 50 million or so. No one’s debating whether Jio can sell a 100 million SIMs. Considering Jio’s unprecedented 6-7 month free offer, it can easily sell 100 million SIMs and probably even have close to 100 million subscribers assuming 80 percent of the people with a 4G phone buy a Jio SIM but once the free offer ends, retaining those subscribers will be a major challenge as a vast majority of these are secondary SIM cards.

The telecom market in India is extremely competitive and there is very little chance for a telecom company to be able to capture more than 40 percent share be it 2G,3G or 4G. While the management at Jio seems obsessed with the raw number of SIMs that are being sold, it is also important to consider acquiring and more importantly, retaining a subscriber. Even in the most optimistic scenario, if the free offer ends in March 2017, then Jio will have maybe 20-30 million actual subscribers. I know some people would feel I am being extremely pessimistic here but even 20-30 million is overboard for a company that has hardly managed to convince even 10 million to port out to its network.

The Airtel-Vodafone Empire Strikes Back

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Jio’s entire economics just fell off a cliff after taking into consideration a series of announcements from the competition. I have already detailed above how the actual number of subscribers that Jio might end up having at the end of March is significantly lesser than 100 million. However, even with a lower base, Jio could have pulled off something had they applied the pricing they initially unveiled on September 5, but I do not think Jio can any longer afford to charge a premium, not at least for the whole of 2017.

Airtel has already publicly declared that it will be giving 3GB extra data on recharges for the entire 2017 to anyone who ports to their network by February 2017. I am sure that Airtel might even extend the February 2017 deadline or make this permanent. This means that an unlimited voice and 4GB 3G/4G data pack from Airtel costs just Rs 345 whereas Jio’s pricing for the same was somewhere around Rs 500. Vodafone has unveiled its super hour pricing that provides unlimited free data for one hour at just Rs 16. Jio’s per day data packet of Rs 19 also provides unlimited free data but only during 2 am to 5 am and data during the day time is restricted to around 100 MB. As time passes, incumbents will only keep getting even more aggressive with their offers. I am already seeing some people get as much as 6GB 3G/4G data and unlimited calling for just Rs 200 or so as a special offer on Airtel.

Jio will now have to significantly tone down its own tariffs as well in order to remain competitive. Couple the already low number of subscribers Jio will have at the end of free offer and the low ARPU and it is evident that for the whole of 2017, Jio will hardly have any meaningful revenue.

Time for a recalibration

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While Jio keeps highlighting its 100 million message, again and again, I feel it is time that the company recalibrates its goals to something that is in the realms of possibility. I am not saying that Jio should not be as aggressive as it is right now but should rather start considering the market realities like the number of 4G handsets available in the market and how maintaining more than 50 percent share in the Indian telecom market seems literally impossible, be it 2G/3G/4G. The company should also start thinking about a new tariff plan because clearly, the one that it unveiled at the launch now seems more expensive compared to what is being offered by some of its competitors.

The times they are a-changin’ in Indian telecom. And after disrupting the market with its initial offer, I really think that it is time Reliance Jio worked on a gentle course correction for itself.

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