The recent announcement of announcing base rates for the spectrum auction by the Telecom Regulatory Authority of India (TRAI) could leave the nation’s telecom sector in a quandary. This would be further compounded by the arrival of the Reliance Jio in 2015.
For the uninitiated, Reliance Jio made an announcement to launch 4G services in 2015. No sooner had Bharti Airtel announced 4G services below 3G rates, Reliance Communications came out with an announcement that it would offer 4G services with unlimited downloads for a Rs. 999 monthly rental plan.
Credit Suisse (CS), a broking firm, considers this to be a sign that 3G services would soon cease to exist in India. With the 3G networks having to compete with new and more superior network capabilities in terms of coverage, speed and cost, it would not be surprising to take note of the worried fate of 3G investments in India, which has barely moved to 3G as of yet.
CS has a reason to be worried. Over the last two years, Bharti Airtel and Idea Cellular have experienced 60% and 40% growths in their respective mobile EBITDA only due to 3G services. Indian telcos are also currently enjoy high EBITDA margins due to 3G data business. As such, the aggressive pricing in the data segment is only set to get more competitive with Reliance Jio’s entry.
Reliance has already approached the Department of Telecom for network tests that would be conducted with security agencies. The first phase of the launch will see nearly 5000 cities and towns as well as over 215000 villages being covered. The second phase will further offer 4G services to over 600000 villages across the nation. Reliance has already signed agreements with many telecom tower companies to lease their assets for the same purpose.
The entry of Reliance Jio would most likely lead to intensified competition in the data segment, bringing down data tariffs by nearly 20% in the process. So, the Indian telcos would be left with little choice but to try and beat Reliance Jio at this game. According to the report by CS, the only way these companies can stand a chance against the mightier and most cost effective 4G services offered by Reliance Jio is by offering their 3G services at a significant discount on a higher spectrum band (aka 3G on 2100 MHz versus 4G on 1800 MHz). However, whether they would be able to bear the financial costs that come with competing with lower prices and advanced technology is something one can witness only with time.
Reliance Jio is all set to enter the data segment market with its high quality, cost effective 4G service. In order to survive in the market, Indian telcos would have no choice but offer their 3G services at far more competitive prices than Reliance Jio’s current pricing plan.