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Reliance Jio on the future of telecom and data

In a presentation to investors, telecom operator Reliance Jio says that the industry is headed for a “revenue transition” from voice to data within the next 1-2 years.  Jio estimates that voice revenue share will reduce from Rs 1.5 lakh crore to Rs 0.5 lakh crore, boosting data revenue share up to Rs 1.3 lakh crore.  The Mukesh Ambani-led telecom company added that overall revenue of the industry might grow up to Rs 3 lakh crore by 2020 due to rising demand for data.

Jio said in the presentation that the demand for data could grow up to 5-6 billion GB a month by 2020. “At a yield of Rs 50/GB it translates to Rs 3.0 – 3.6 lakh crore/year,” the telco mentioned. Post launch of Jio, rival operators including Airtel, Idea, and Vodafone posted a steep decline in data revenues, while voice usage remained flat. Due to this, incumbents have launched their own version of bundled data packs, mirroring Jio’s tariff strategy. Therefore, the data-led pricing strategy is expected to change how companies offer cellular services to end consumers.

RCOM’s CEO Gurdeep Singh had pointed a similar theory during a recent analyst call. He said that the telecom industry has shifted from being a tariff-based business to “a capacity and a volume-led play” wherein “the pricing structure is getting transferred from per minute or a per MB to ARPU-led structure.” This means that telcos will focus on retaining users with attractive pricing and more data usage in packs, in order to grow their ARPU, instead of just focusing on pricing strategy.

“Voice is demand constrained; Data is supply constrained”

Jio said in the presentation that voice usage is subject to demand and limited to user “availability”. Data usage, on the other hand, is “elastic”, according to Jio, due to an increase in phone screen sizes, resolution, data speeds and time spent on the Internet. The company, however, estimates that a smartphone user is more likely to generate more ARPU when compared to feature phone users.

Jio also pointed out that there are more than a 1 billion phone connections in India, denoting that both smartphone and feature phone users have a dual SIM. But “data can be activated only one SIM,” according to Jio and this means that a feature phone user is less likely to get a second SIM for voice purposes; he/she would instead purchase a second SIM for data usage.

4G LTE penetration is low

Note that Reliance Jio is also capitalizing on the larger mobile market by selling LYF smartphones which comes with 4G LTE. The company is also expected to launch a 4G feature phone, although a timeline was not provided. But this isn’t enough. Jio says that there are very few LTE devices when compared to 3G smartphones. There are 124 million LTE devices in India, compared to 165 million 3G/2G devices. To tackle this Jio is taking is betting on two different strategies:

Provide first -time Internet users with an LTE enabled feature phone at low-cost. This could motivate them to purchase a smartphone in the future, especially with the market now moving towards bundled voice+data packs.
Provide LTE connection using JioFi (WiFi hotspot device) to customers with existing 3G smartphones.
Partner with OEMs, smartphone manufacturers to bundle free Jio SIM cards.

Apart from this, Jio claims that it is in a better position to compete in the 4G sector since it estimates that handset prices are a proxy to ARPU being generated. The telco claims that the average handset price on its network is well above Rs 10,000 due to its 4G-only strategy, while rest of the telecom industry has only 10% of devices above the Rs 10,000 mark.

Why Jio skipped the 3G standard

Reliance Jio stuck to a 4G-only strategy; here’s why:

-Jio mentioned that rival operators keep their 3G infrastructure on for voice traffic due to increasing voice load. Since these operators do not readily support VoLTE, their dependence on 3G for voice could increase even if they expand 4G services.
– Conventional antennas/tower will have to be replaced since they don’t support remote electrical tilt and MIMO (Multiple Input, Multiple Output)—a 4G networking technology used to improve or better optimize the network.
-Old 3G Base Station Transceivers (BTSs) cannot be upgraded to 4G, according to Jio. “Even new 3G BTS would require additional card and huge license cost for (a potential) 4G upgrade,” the company added.

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© 2008-2021 Mixed Bag Media Pvt. Ltd. Developed By PixelVJ