COMMENT: Reliance Jio's pricing suggests bloodbath ahead for other telcos

Bharti Airtel on the other hand saw its revenue fall by 5 percent and consolidated EBIDTA by 10 percent. Its presence in other markets helped the company cushion the impact of its India performance. Though Vodafone does not disclose its Indian numbers separately, its parent company had recorded a non-cash impairment charge of five billion Euros for the six months ended 30th September 2016, highlighting the pressure in its Indian operations.

However, December 2016 quarter impact will be smaller than that in March 2017 quarter when the first full quarter of Jio impact would be felt on the telcos.

Market will be closely watching the stickiness of Reliance’s 100 million consumers post the scheme launch. Average Revenue Per User (ARPU) for data of Idea and Bharti is Rs 200 per subscriber per month and a wireless ARPU of Rs 160 per user per month. Reliance has priced its product at Rs 303 to attract a major portion of the fastest growing data market. An important point worth noting is that the scheme announced by Reliance is a prepaid one meant to tap the low-end users.

By offering a limited window of March 1 to March 31 for availing of Jio Prime Membership Programme, Reliance wants to add as many members as possible to its list before the revenue plan goes live.

But whether the pricing is attractive enough to retain a portion of its present consumers intact will depend on how the other telecom players place themselves. The impact on them will actually be felt post April and the June quarter will be the most keenly awaited one for these telecom players.

Here is a back-of-the-envelope calculation to show where Reliance is relative to its rivals. Based on the pricing announced by Reliance, it would require the company to have 100 million subscribers to the Jio Prime Membership Programme for its quarterly revenues to match Idea Cellular’s standalone quarterly revenue and 170 million to match Bharti Airtel’s quarterly revenue.

It’s difficult to predict, but if 60 percent of current users stay and another 40 million sign up, it would mean that Jio is already at par with Idea, and would have exceeded Idea if there were migrations away from the Birla group company.

Given Reliance’s history and modus operandi the company would continue with its aggressive pricing till it gets a lion’s share of the market. Consolidation in the industry is unlikely to deter Reliance in its aggressive posture for gaining market share.

Disclosure: Reliance Industries, which owns Reliance Jio, also owns Network18, which publishes Moneycontrol.com.