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Telecom’s moment of truth is slowly, but surely coming

LiveMint logoLiveMint 18-09-2017 Mobis Philipose

Reliance Jio Infocomm Ltd is beginning to have a larger impact on the active subscriber base of large incumbents.

Vodafone India Ltd and Idea Cellular Ltd together lost 1.5 million active subscribers in July, data released by the Telecom Regulatory Authority of India (Trai) last week shows.

Things have been wobbly for the two companies lately, with weak net additions of 0.1 million and -0.5 million in the preceding two months as well.

This is in stark contrast to the first eight months of Jio’s existence, when the median increase in their subscriber base stood at 3.2 million. Bharti Airtel Ltd has held its own, although even in its case, net additions to its active subscriber base fell to 0.4 million in July, lower than the median increase of 2.6 million in the first eight months since Jio launched services.

Ironically, what has changed in recent months is that Jio has started charging for its services, even if its tariffs are highly discounted.

How is it that large incumbents were unflappably adding over 5 million active subscribers a month when Jio’s services were free, and are struggling now that their chief adversary is making its customers pay?

The mystery can be simply explained by the dual-SIM phenomenon. Nearly all of the phones which are compatible with Jio’s 4G SIM have slots for two SIMs. As a result, when Jio launched its services, users who grabbed its free SIMs didn’t really need to discontinue services of their existing operator.

Of course, in cases where small telcos such as Aircel or Tata Teleservices occupied the second SIM slot, they generally got the boot. This is evident from the median monthly decline of about 4 million active subscribers reported by small telcos in the past 11 months.

In effect, Jio and large incumbents shared a somewhat peaceful coexistence in 4G handsets. Evidently, Jio’s decision to start charging for its services has disturbed the peace.

Customers now need to decide whether they need two SIMs at all, especially with Jio having pushed the industry towards plans which allow unlimited calls and high amounts of data usage. If one service provider offers it all, why use two?

As Jio gradually increases its tariffs, more and more customers will start taking the call of which operator to stick with. Assuming Jio steps up its tariff to its undiscounted rack rate of about Rs300/month, there is hardly a case for a second SIM in most phones. After all, average spends by Indian consumers on wireless services is far lower. As long as Jio charges around Rs133/month, as it currently does, a large number of customers may still afford the luxury of having two SIMs. But clearly, this isn’t going to last forever. The telecom industry’s moment of truth is slowly, but surely, coming.

Despite this backdrop, share prices of Bharti Airtel and Reliance Industries Ltd suggest the happy coexistence might continue. The latter’s shares have risen 64% since Jio launched services, and have gained Rs2 trillion in market capitalization. Airtel has gained Rs22,000 core in market capitalization; while Idea Cellular, given its more precarious position, has lost about Rs5,000 crore in value.

Already, Jio’s discounted tariffs have resulted in a sharp drop in revenues for incumbents even though they have managed to retain subscribers. But, as pointed earlier, subscriber churn is yet to happen. Besides, the impact of the Jio’s effectively free feature phone is still to be seen. From the looks of it, the industry’s woes are nowhere near done.

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