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How is Reliance Jio providing free unlimited 4G data when other companies charge high?

Reliance Jio 4G services is now open for everyone to avail from September 5. However, there is still a lot of confusion in the market how they are offering 4G data at such cheap rates? And how are they providing unlimited voice calls (local/STD) free to every JIO customer?

Analysys Mason, research and advisory firm recently published a report on data pricing in India.

What Analysys Mason said?

“India’s current data tariff (based on current average revenue per GB of Rs 228) is significantly higher than that of relevant developed and developing countries, when adjusted for the per-capita incomes to normalize for affordability levels,” says Analysys Mason.

“India’s data tariffs (price of 1GB pack) as percentage of GNI (gross national income) per capita is currently 2.6 per cent — whereas, on an average, the developed economies’ data tariff, as a percentage of GNI per capita, currently stands at 0.4-0.5 per cent,” it adds.

In other words, an average user of data in India spends 2.6 per cent of her/his annual income to consume 1GB of data per month — which is way higher than the average of 0.2-0.4 per cent of the annual income that is spent by their counterparts in developed markets.

“Our analysis concludes that a 75 per cent cut in data tariffs (average revenue per GB of Rs 57) alone could increase the user base to 645-667 million SIMs, and the level of monthly data usage to around 4.2-4.3 GB per SIM in 2019-20,” the Analysys Mason study says, in the given scenario.

Such high pricing isn’t helping millions of Indians to be part of the digital India push by the government.

Now Reliance Jio decided to kill the competition by offering 4G services at an affordable price which the existing telcos failed to do.

Customers earlier didn’t have an option as every telco increased the price of data packs (2g, 3g). Now with Reliance entering the market there will be a price correction (which is in overdue for so many months) and price of data packs which have been on the upward direction in the last few months will definitely go down thereby making data more affordable to every Indian.

Telcos which enjoyed a period of oligopoly till now will be facing many challenges in retaining their customer base. And Reliance Jio is the new disruption in the world of telecom.

“The era of paying for voice calls is ending. Jio will usher India into a new era on the Jio network – across India, to any network, always. And in the spirit of ‘One India’ – no roaming charges also. Jio will put an end to voice call charges in India,” Mukesh Ambani said, amid applause from those at the 42nd Annual General Meeting of the company at a rather overcrowded Birla Matoshree Auditorium.

In the telecom industry primarily you make money by either charging your customer for voice, data or both. But as Reliance has already announced that it will not be charging for voice so the only way for the company to make money/profits is charging subscribers for Data.

Jio tariff Plan

Mukesh has set a target of 100 million subscribers in the shortest possible time

Abhishek Gupta, a telecom analyst at IDFC Securities, said: “There are low-hanging fruits for Jio in the form of subscribers with fringe players. We believe the 100-million mark is more like an aspiration. Even if Jio has 40-50 million subscribers in the 12-month from its launch, it would be a reasonably successful.”

How much will they be actually capturing in the coming months?

In India about 67 million 4G phones have been shipped cumulatively till first half of 2016, which come from 58 multinational, Chinese and Indians brands put together. Samsung, Lenovo, Micromax, Xiaomi, Apple, Lyf, Intex, Asus, HTC and Gionee, in that order, are the top 10 4G smartphone brands in this nearly two year period.

Save Lenovo, Xiaomi and Apple, all brands now offer the Jio preview. Reliance Jio Infocomm’s subscriber base even before commercial launch could well be over 25 million users, on the back of the three-month preview offer of free voice and data which is now extended to 19 phone brands, according to Cybermedia Research.

With more brands set to join the bandwagon, Jio’s reach extends to 19 brands that have cumulative 4G shipments of over 42 million handsets, or more than 65 per cent of the total 4G smartphones cumulatively sold in India since 2014 till June 2016.

So How Will Reliance Jio Make Money?

In fact, just ahead of Reliance Jio announcements, Analyses Mason – a top global consulting firm focused on digital media – said in its latest report that data tariff is pretty steep in India even by the developed nations’ standards, and that there is scope for a 75-percent cut to push usage.

The consultancy said an average monthly increase in data usage to 10.2 GB at a discounted tariff of Rs 57 per GB, with 10 percent contribution from voice, will translate into a total increase in monthly average revenue per user of Rs 645. In Jio’s case, the average tariff may be much lower without the 10 percent contribution from voice telephony and a sharp cut in data tariff.

But the voice telephony for Reliance Jio is not the traditional 2G or 3G offering, but over the Internet. This, the chairman, explained has its own dynamics. The company is also betting big on compelling applications and content, currently worth Rs 15,000 per annum, as also superior digital service experiences.

Interestingly, the study says that telecom companies won’t actually lose out by lowering tariffs.

It underscores that in terms of affordability, an average monthly increase in data usage to 10.2 GB at a discounted tariff of Rs 57 per GB, with 10 per cent contribution from voice, translates into a total increase in monthly average revenue per user of Rs 645.

So there’s a big bounty for the companies to gain by lowering the tariffs which is exactly the strategy behind huge discounts by Reliance Jio.

Data ARPU will be the principal driver of Jio’s overall customer revenues that will also include voice ARPU.

ARPUs should rise higher as faster data speeds boost data usage. And Reliance Jio is betting heavily on this (150000 crores investment is not a small amount and Mukesh Ambani is not stupid to leave such a golden opportunity)

Other Avenues

  • Handset sale

Reliance Digital had shipped LYF smartphones in large quantities anticipating the commercial launch of the 4G LTE network. LYF had become the 4th largest smartphone vendor in the first quarter of 2016 according to IDC. It has now 7.1% market share.

  • App based services

It is banking on its content such as on-demand video, music streaming, news and high definition television services to consumers on the go at affordable prices in a bid to differentiate itself and attract subscribers in a highly competitive telecom market.

  • Broadband, wireless services and Broadcast TV distribution

Reliance Jio, the only pan-India license holder of broadband wireless spectrum and last year received a provisional licence from the I&B ministry to function as an all-India cable television MSO. It is going to enter into broadcast TV distribution directly competing with the likes of Tata Sky, Airtel TV, Digital TV and Dish TV.

  • Payment digital wallet services

Reliance Jio already teamed up with the State Bank of India (SBI) to launch the digital wallet service called Jio Money.

Digital Empire in making (Jio Ecosystem)

Now, the country’s richest man, and head of India’s most profitable company, is betting at least $20 billion on building, from scratch, a national digital empire stretching from phones and hardware to home entertainment and custom-made apps.

The ambitious Jio project could make Reliance the most comprehensive provider of telecom and internet services across India — and give it unprecedented access to the country’s untapped ‘big data’: how millions eat, shop and have fun.

“For Reliance… data is the new oil, and intelligent data is the new petrol,” Mr. Mukesh Ambani said in March, explaining his drive to move closer to India’s consumers.

It’s not going to be easy but after bleeding for some more months (maybe a year) but they would eventually start making profits. But it will be more difficult for the incumbent players like Airtel, Idea and Vodafone.

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