Since Mukesh Ambani's Reliance Jio launched its data and voice services on the 4G-LTE network, incumbents such as Airtel and Vodafone have been struggling to keep their financials in order. Photo source, Flickr. Cologny, Switzerland, 2007. Photograph: (Others)
But they add that its average revenue per user (Arpu) may be higher than bigger rivals
The announcement by Mukesh Ambani, on Tuesday, that Reliance Jio will stop offering free data services from April has raised the question if it will end telecom industry's suffering.
Analysts say it will take at least one or two years before the industry gets back on track.
Free voice and data services offered by Jio since last year had thrown the financials of its rival companies like Bharti Airtel, Vodafone, Idea Cellular and others under stress.
"With the commercial launch of Jio's services, I foresee that in a year or so, things overall will have a more stable and financial outlook will be sound. Telecom industry will be going through a period of pain but at the end of it, there will be some good coming out of it," Ambani said.
G Krishna Kumar, Bengaluru-based telecom analyst, expects the upheaval in the sector to continue as competition to grab data market will intensify.
He said that Reliance Jio may find it tough to retain its current user base after its data services become paid.
Krishna Kumar predicted that 50-60 per cent of the users will withdraw from Jio post commercial launch on April 1.
"In the Indian context, most users are prepaid users and the average revenue per user (Arpu) in this segment is around Rs 100-130 (about $1.50-$2.00 US). If you compare that with Rs 300 ($4.50 US) that Reliance is offering, how many people will be able to afford that? Today, people are on Jio network because it is free. I believe 50-60 per cent of the users will pull off," he said
Today 96 per cent of mobile users in India were prepaid subscribers.
"Jio is trying to attract prepaid subscribers through the Rs 303 ($4.50 US) per month plan but may not be able to convert the prepaid subscribers There may also not be many takers for mobile porting as the quality of voice call on Jio network is very poor," he said.
According to him, Jio may be able to attract customers in the post-paid segment, which is only 4 per cent of the users and where the Arpu is about Rs 490 ($7.30 US) per subscriber.
"Jio could attract customers in this (postpaid) segment. Considering that the Jio's voice quality is not good, the subscribers may go with incumbent connection for voice and Jio for data," he said. Another analyst, who did not want to be named, said since Jio's mobile data usage was comparatively higher than rivals, it will earn better Arpu even if its rates are lower by few percentage.
"While the incumbent's data usage is less than 1 GB per subscribers and Jio's running in excess of 3-4 GB per subscriber, it went to 6 GB last month. So I would expect that Jio users being used to 6 GB data usage, even when they (Jio) start paying a price for that which is lower than the price of others, the 6 GB wouldn't go down much. It will definitely be 50 per cent or 40 per cent of that because once you get used to it becomes an additive. And so, even at 20 per cent lower price, he (Ambani) can still get better ARPU [average revenue per user] than others. That seems to be the commercial strategy behind it," said the telecom expert.
(This report first appeared on DNA)