Been there, done that: Reliance Jio’s disruption playbook is familiar. Will its mistakes be too?

In late July, Jio announced free 4G feature phones (provided customers agreed to pay a deposit and stay locked in for 3 years) to wrest the middle of India’s telecom pyramid from incumbents.

There are 500 million feature phone customers in India.

Last September Jio launched with free data and voice services over a state-of-the-art 4G wireless network. It would be 9 months till India’s telecom operator warned it to stop offering free services in a regulated and competitive market.

But by then, Jio had already crossed 100 million subscribers.

It’s clear that for Reliance Jio, “free” is its hammer and every telecom-based market segment – smartphones, feature phones, wired broadband, cable TV, digital payments, banking, home automation, homeland security – a potential nail.

Of course, the hammer isn’t original. Remember, there are no new ideas?

“Free” was something Reliance discovered in 2003 when under Mukesh Ambani it first launched a telecom company – Reliance Communications. The playbook was the same – free or ‘almost-free’ services and products combined with an unprecedented blitzkrieg of capital, marketing and PR in an attempt to dislodge competition.

But today, Reliance Communications lies in tatters. Can Reliance Jio avoid the same fate?

Zero to hero

In spite of being commercially available for nearly a year and having invested over Rs 200,000 crores (appr. $30 billion), nobody knows what Jio’s revenue is. Because they haven’t announced it yet. A lot of criticism of the company has been on that front.

But with Reliance, what you see is never what you get.

“If you normalize things, Jio is probably sitting on around 7-8% of the industry’s revenue right now. And by the end of the year that might touch 10-11% on a run-rate basis,” says Chris Lane, telecom analyst with Bernstein.

That’s just the beginning. “I don’t think Jio will be happy with anything less than 30%,” says Lane.

And that isn’t enough a very far-fetched number. “Jio will get to 15% revenue market share if they fell asleep at the wheel today. And 20% if they do even a middling job on execution,” says a senior industry executive at a rival telco.

Suffice it to say, Jio will be aiming to avoid both falling asleep at the wheel or middling execution.

In just over 6 months, Jio has already forced a ‘new normal’ for high-speed 4G data and smartphone users. The leading incumbents – Bharti-Airtel, Idea and Vodafone (Idea and Vodafone are currently awaiting regulatory approval for a merger) – have all had to introduce virtually unlimited voice calling and 1GB of data every day for around Rs 300 a month. As more of their higher ARPU (average revenue per user, per month) customers move to these cheaper plans, their revenue will continue to plummet.

Meanwhile Jio’s free assault is only starting. Their “effectively free” 4G feature phone announced last week is going to wreak havoc on a 500 million user market that incumbents thought was driven by voice telephony, not data. For Rs 153 a month, subscribers will get unlimited voice and half a GB of a data every day.

It’s a market Jio needed to be in desperately, because today’s feature phone customers are tomorrow’s smartphone ones.

“Jio’s biggest disadvantage is that it doesn’t have a constant pipeline of (2G) customers upgrading to 3G or 4G,” says Lane.

A huge announcement

The day Jio announced this, Bharti and Idea’s stocks fell by 2.1% and 3.1% respectively. Bernstein estimates that Jio will steal around 30% of the current feature phone market, or around another 150 million users. For Bharti, Idea and Vodafone, this would mean a net loss of 14% of existing subscribers and 8% revenue.

Once again, like with their data plans, the incumbents will have no option but to offer similar priced plans to prevent mass erosion to Jio.

But the problem is neither of them have a pan-India 4G network of Jio’s scale. Even if they did, unless they also offered a bundled and subsidized (or ‘free’) feature phone, cheaper plans would only cannibalize their smartphone user revenues.

Meanwhile, the fragmented but underpenetrated broadband market is up next. Jio has started acquiring homes by promising speeds that are 15X faster than current averages. For up to 6 months and at the wonderful price of “free”.

One would think Reliance followed a faultless playbook to get here. Instead, it took 6 years to launch operations and bumbled through much of it.

 

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