All-Out War for Wireless Data traffic now begins!!

As per Quarterly Reports presented by Bharti Airtel & Idea Cellular post June'16 Result announcements, the No. 1 & No. 3 operator were carrying approximately 60 million GBs and 35 million GBs respectively on a monthly basis. At an average realisation rate of about Rs.220 per GB, it translated into a monthly revenue of about Rs.1300-1350 crores for Bharti Airtel and about Rs.750-800 crores for Idea Cellular.

Reliance Jio entered the scene in the second half of the June quarter, when it started issuing a Jio Sim with 90-days Preview Offer alongwith all LYF handsets. By June-end, Jio had activated an additional about 1 million Sim cards under this offer, taking it's active user base to 1.5 million. The average usage of these 1.5 million users was said to be about 1 GB per day!! That means Reliance Jio's network must have carried approximately 35 to 45 million GBs of Data during the month of June'16, making it the 2nd largest Wireless Data carrier in India at that point of time. And this was just the start. Reliance Jio is expected to have added another 1 million users in the month of July'16 under the LYF-bundled Preview Offer. It's Data traffic must have been in the region of 70 to 80 million GBs for July'16, making it the No. 1 Wireless Data operator in India in terms of Traffic alone. Theoretically, Jio wasn't making any money from this traffic as it was all Free for the buyers of LYF handsets. In the 2nd fortnight of August'16, Reliance Jio opened the floodgates by allowing other 4G handset owners to also receive a Jio Sim with the 90-days Preview Offer.

By the end of August'16, the active user base on Jio's network is expected to have touched close to 5 million with a monthly Data Traffic in excess of 150 million GBs, more than double that of Airtel's expected Data traffic number for the month. It is highly unlikely that existing operators like Bharti Airtel & Idea Cellular or anyone else, must have seen any significant growth in monthly Data Volumes during the current quarter, i.e. Sept'16 quarter. A small portion of the heavy Data users had already bought the LYF handset and were enjoying the Unlimited Data benefits on Jio network. The massive rush for Jio Sims, which started in the last week of August, has continued in September after the Chairman of RIL announced full scale launch from 5th September with Welcome Offer where all users will be eligible to get 4GB per day of 4G Data & Unlimited Voice Calls & SMS till 31st December'16. Reliance Jio's user base is expected to touch around 15 million by the end of Sept'16 with a monthly Data Volume of around 250 million GBs

How is the Competition reacting to Reliance Jio's aggressive Usage growth?

With Reliance Jio zooming past all the existing operators in terms of Network Traffic numbers, it was just obvious that all the existing operators will feel varying degrees of pain. At least 10 to 20% of Traffic on Jio's network must have directly come from competitors' traffic numbers (remaining 80-90% volume was either Splurge usage or replacing Broadband/Cablenet traffic, as everything was Free on Jio's network). Before Jio came in, monthly Wireless Data volume on 2G/3G/4G networks must have been in the region of 150 million GBs and it was growing at a pace of 3 to 5% M-o-M. That means incremental growth in Volume of about 5 to 10 million GBs. That means Jio must have gulped down not just the incremental Volume, but a small portion of existing volume number too, by now. The existing operators must have detected exhaustion of growth in Data volumes in July itself. Hence their first step towards protecting volumes came around end of July in terms of increasing Data limits on packs of denomination higher than Rs.300 or 350. Where they were earlier offering 2 GB Data limit, it was revised to 3 GB and in the regular 3 GB Data pack, the limit was raised to 5 GB, and then 10 GB 3G/4G Data pack was now priced just under Rs.1000/-, which was earlier costing anywhere between Rs.1300 to 1800. 

This step might have helped retain Data volumes for some time. But after Jio unleashed the Sim card eligibility to almost all 4G handset owners in the last week of August, leading players like Bharti Airtel & Idea Cellular, who both had reasonably large 4G network in place, had to take the second step. Both of them announced something like the Mega Saver Pack costing around Rs.1498/- by the end of August, which came with upfront 1 GB Data limit & gave the subscriber the eligibility to get 1 GB/ 2 GB/ 5 GB recharges at highly discounted rates of about Rs.51/ 101 / 251, any number of times over a 12 months period. Seems like this Mega Saver pack wasn't helping these operators in arresting fall in Data Volumes much, as people across all major cities & towns continued thronging Reliance Digital stores to grab a Jio Sim at the earliest. Both Airtel & Idea further sweetened the Mega Saver pack by hiking the upfront Data limit to 6 GB, just 2 weeks after announcing the packs around August-end. Seems like this too wasn't helping the operators much as today Bharti Airtel is said to have announced another pack priced at Rs.1495, which will give the customer 30 GB of 4G Data with 90 days validity, bringing the effective Data rate to just Rs.50 per GB. This pack is said to be available in Delhi from today & will be rolled out to other circles over the next few days. I won't be surprised if Idea & Vodafone too follow Airtel in announcing a similar pack in the coming few days.

My View: 

Reliance Jio's offer includes both Free Data & Free Calling and SMS till the end of this year. This is kind of a double-whammy for all existing operators as a major usage shift of existing mobile users to Jio's network will start pulling down the former's revenues. Hence the Top-3 operators have undertaken a 2-pronged strategy to counter this: 1st is to try & spoil Reliance Jio's name as much as possible as far as Voice calling is concerned. Reliance Jio has been crying foul since even before it's commercial launch that Airtel, Vodafone & Idea have been deliberately not giving enough Points of Interconnect to enable smooth transfer of Calls from Jio to their networks & vice-versa. This might have been one reason why Jio was forced to announce Commercial operations from 5th September, coupled with Welcome Offer of Free usage to it's subscribers till year end. After announcement of Commercial operations, Jio must have signed requisite Interconnect agreements with each operator & started paying IUC @ 14 paise per min for each outgoing call to other operator. At the same time, the other operators will have to provide enough Points of Interconnect in line with increase in Call traffic between them. It's been close to 3-weeks since Jio's commercial operations have started, but the Voice calling to other operators, especially the Top-3 ones, is still not anywhere near smooth. 

Reliance Jio has been desperately pushing each of the other operators for enabling more PoIs at the earliest. But the more they delay it, the more damage will be inflicted on Jio's brand image and better their chances of retaining their customers. But this can't go on for long & very soon we will see a substantial improvement in Voice Calling from Jio numbers to those of other operators. Jio will try to streamline all their Voice Calling operations well before the Welcome Offer period ends. If Jio's active customers do get a good Voice Calling experience for atleast the last 3 to 4 weeks during this Free period, then there is a higher probability of these customers getting converted into Paying customers from 1st January'17. And once the word spreads that Voice Calling is also now normal from Jio network, many people will start thinking of porting their primary mobile numbers too.

The 2nd part of the strategy adopted by existing operators is to try & offer higher Data limits for higher denomination packs. By doing this they are trying to maintain some minimum level of Average Monthly Revenues, even though the Data Volume might get a big boost. Look at the Mega Saver pack for example. If a customer does recharge with Rs.1498, he gets 6 GB 3G/4G Data upfront with 12 months validity. This ensures an ARPU of about Rs.125/month to the operator. Suppose this customer needs atleast 5 GB of Data per month, that means he will be consuming about 60 GB in a year. That means he will need to do a recharge of Rs.251 or 252 every month from the 2nd month onwards. That means the operator will receive a total revenue of about Rs.4200 to 4300 (1498 + 2770 approx.) from this customer over the year, translating into a monthly ARPU of around Rs.350/-, which is a decent number. The other pack that Bharti Airtel announced today, which offers 30 GB of 4G Data for 90 days at Rs.1495, is again aimed to ensure around Rs.500 per month in ARPU for the operator. This pack will most probably be a limited period offer as it is an attempt to retain High Usage customers from shifting their usage to Jio. 

But the big question is: How successful will all these moves be to ensure minimum loss of revenues for all these operators for Sept & Dec quarters? 

I think all these existing operators who have millions & millions of subscribers on their 2G/3G/4G networks, will not lose much of their Voice revenues, atleast during the Sept quarter, because of 2 reasons: 1) Jio is expected to enroll just about 15 million users by Sept-end, which is just about 1.5% of the total active subscriber base; 2) Voice Calling experience on Jio is still not smooth, though it is expected to improve in the next few weeks. The existing operators will certainly lose some portion of their Voice Revenues during December quarter as Jio's user base is expected to expand from 15 million to well over 50 million over the 3-months period. And the Voice Calling experience should be much better during most part of the December quarter. I am estimating a drop in Voice Revenues to the tune of 3 to 8% across all existing operators. The drop in Outgoing Calls volume could be larger than drop in Revenues, but all these operators are expected to be Net-receivers of IUC from Reliance Jio as Calls from Jio to their networks are expected to remain 5 to 10 times higher than calls in the reverse direction, atleast in the initial few quarters. Gradually this multiple could come down to about 2-3 times over the next 1 or 2 years.

Coming to Data Revenues, this is where the impact will be much bigger on all existing operators. As of June'16-end nearly 70% of the Total Wireless Data traffic & 95% of the incremental traffic was from 3G/4G customers. Bharti Airtel had about 36 million & Idea Cellular had about 27 million 3G/4G Data customers at the end of June quarter. That means the Total 3G/4G Data customers in India should be around 100 to 110 million by the end of June'16. Out of this number, nearly half of them are expected to have a 4G handset, making them a potential customer for Reliance Jio. Apart from that, nearly 8 to 10 million new Smartphones are sold in India every month and most of them now are expected to be 4G compatible phones. That means Reliance Jio's potential customers are growing in numbers at a rapid pace. By the end of December'16, the number of 4G handsets in India could be crossing the 100 million mark and there could potentially be a Reliance Jio Sim card in half of those. Since Reliance Jio is offering all it's services Free of charge till December-end, almost all the 4G handset owners would like to try their services. So it's a matter of how many enrollments Reliance Jio is able to handle over these 3 to 4 months. I am estimating that Reliance Jio could be able to activate anywhere between 10 to 15 million Sim cards every month, which should translate into a User base of between 50 to 60 million by end of December'16. Even if this turns out to be true, then Reliance Jio could possibly become the largest Wireless Broadband player in India (in terms of Subscribers too) even before the end of this year. This will certainly have a serious impact on the Data Volumes of all existing 3G/4G operators in the country.

The existing operators are already seeing a substantial portion of their 3G/4G customers shifting their usage to Reliance Jio and hence are being forced to offer increased Data limits to their customers in order to try & retain as many Data Consuming users as possible. This action will help them in somehow maintaining the overall Data volumes on their networks, but it will certainly pull down the Net realised rate per GB of Data. I am expecting the June-quarter average rate of about Rs.220 per GB to fall to around Rs.180-190 per GB for September-quarter and to a level of below Rs.150 per GB for December-quarter. That means the Average rate per GB is expected to fall by about 30-35% over these 2 quarters. Hence in order to maintain Data revenues at same level as June-quarter, these operators will need to ensure a Data volume growth of around 30-35% over these 2 quarters, which I think will be very difficult to manage on the face of Free Usage offer from Reliance Jio during this period under consideration.

But things could be a bit different from January onwards. The Top-3 operators, who are continuously expanding their 4G network coverage currently, could recover a part of the Data Traffic market share lost during the Sept & December quarters, as Reliance Jio users will also need to pay to use their services. I have already shared my opinion on the Tariff Plans announced by Reliance Jio earlier this month. Click here for that post. Those tariff plans are more suited only to certain categories of users, like the ones who talk a lot and those who live in urban areas & have regular access to Jionet WiFi services. Those plans are clearly not suited to those who were looking for pure 4G Data packs. Unless Reliance Jio tweaks those tariff plans or introduces new pure 4G-Data packs, it is bound to lose a substantial chunk of it's user base post 1st January'17. Reliance Jio will certainly consider the traffic flow on it's networks for a couple of weeks post 1st January'17 and can then easily introduce new Data packs to bring back the users who had stopped using their services due to lack of suitability.

All in all......this massive competition amongst the incumbents & Reliance Jio for increasing Wireless Data traffic is currently benefiting the Data customers tremendously. India's Wireless Data volumes could be hitting a record high during the Oct to Dec'16 quarter, which might remain a record even for another year or more. This is Bonanza period for Customers, but equally a painful period for Shareholders of all these Telecom companies. 'Survival of the Fittest' will be tested in this sector over the next few quarters.