Care Ratings revealed that the profit margins and revenues of the Indian telecom service providers will remain under pressure due to Jio 4G.
The second prediction from Care Ratings is about the muted response from telecom network operators during the spectrum auction next month.
Due to the launch of Jio 4G services by Reliance Jio, the profitability margins and revenues of the telecom service providers will remain under pressure, said Gaurav Dixit and Vishesh Mehta of Care Ratings.
While sustainability of weaker telecom players will be under stress, Indian telecom subscriber will be benefitting and enjoying mobile services at competitive rates.
Care Ratings anticipates that Jio will succeed in India because it owns spectrum in 1800-MHz band in 18 circles, and owns pan-India 850-MHz and 2,300-MHz spectrum. Jio has a spectrum-sharing deal with Anil Ambani-led Reliance Communications for 850-MHz band in seven circles.
Jio’s offers included free lifetime voice calls and roaming services for users along with data charges at about one-tenth of the prevailing rates.
Care Ratings anticipates that the telecom sector will see a lot of churning in the coming months with the incumbent operators trying new and innovative strategies to retain their market share.
The entry of Jio will put pressure on the mobile tariffs at a time when capital expenditure (Capex) for incumbents was expected to increase with the upcoming spectrum auction wherein the incumbents were under pressure to beef up their spectrum holding to counter the issue of call drops and other network quality issues.
Care Ratings says the telecom sector may move towards the “data-only plans”, making voice and text messages cheaper or almost free.
This could be particularly disruptive for the incumbents, as most of the leading operators still derive majority of their revenues and profits from voice and text messages (~70 percent) leading to a weakening of their operating performance, a slowdown in revenue growth and a decline in the profitability margins.
The entry of Reliance Jio will accelerate the data adoption in India. Jio with its low data tariffs needs to ensure that along with a mass adoption of its 4G services across circles, there is a good amount of consumption of digital content to generate return on the capital employed by the company.
The incumbents with a strong competitive position will be modifying their strategies to counter the new challenge with their own tariff plans.
BSNL announced that it expects to match the intense competition to be given by JIO with “tariff-by-tariff” which might also pose challenge for Jio’s WI-FI plans as BSNL has more than 250,000 kms of optic fiber cable already operational across India.
A good customer experience for its new subscribers will be a force multiplier in its efforts to scale up its operations and will depend upon its ability to offer a quality customer interface at its outlets as well as its customer support.
The company is facing some teething issues in form of the interconnection row and issues related to MNP which have been going on between the Jio and incumbent operators which is having an adverse impact on its services.
Jio’s ability to overcome challenges will determine how successful it gets in this battle of acquiring subscribers.
Weaker players may consolidate with Jio which will help the company in pooling the resources and offer strong network coverage for its subscribers.
