Jio's free voice calling may hurt telcos severely: EY

The upcoming launch of Reliance Jio can impact adversely other telecom operators on account of free voice calling, but it remains to be seen in voice calls on the network are subsumed in to data usage, said Prashant Singhal, National Telecom Leader, EY. Reliance Jio's promise of a lifetime worth of free voice calling is likely to impact other telecom operators which are dependent on voice revenues, he told CNBC-TV18. If voice calls aren't subsumed into data usages, telcos will be hurt severely, he said.Calls on Jio's 4G network are based on Voice over LTE (VoLTE) technology which converts voice communications into data packets. It remains to be seen how Jio takes into account costs incurred in running VoLTE technology, Singhal said.He also said the next few months before the commercial launch of Jio will be a test of network quality and the launch can impact upcoming spectrum auctions as well.Below is the verbatim transcript of Prashant Singhal’s interview to Prashant Nair & Ekta Batra on CNBC-TV18.Ekta: How disruptive is Jio’s tariff plan going to be for the incumbents?A: If you look at the plans there are various plans and for a midsized user the plan does not become too disruptive even though there is free internet and free calling. However, for the entry level the plan is really disruptive. It would have an impact on the overall market. I think we would see the revenues in the market coming down. It obviously would increase the data penetration and we would see a squeeze on the margins that is bound to happen with the tariff coming down. Prashant: What about voice, Jio is saying that voice will be free for ever, they will never charge for it?A: We will need to see that because voice would that be subsumed into the data usage by using the IP networks. So, you still end up paying for some kind of voice rather than making it completely free. However, if it is free and completely free without being subsumed into data charged then it does have an impact and could have a substantial impact on the market as a whole because India as a market is 70 percent voice as you rightly said. If that becomes a free, there are various elements, you also have interconnect charge, you have the termination fees which has to be paid right now. So, somebody will have to bear that if it is all free. It is not Jio to Jio voice calling which is free; it is the STD and the other operator calling also which is free.Ekta: What percentage of the over industry revenue will Jio be able to disrupt according to you?A: You can’t put any numbers around it but we are at about 45 billion market as the industry, what 40-45 billion market. Of which it is still largely dominated predominant voice. They should be closed to about 60-70 percent seen at USD 35 billion. With the data revenue of 10 billion with the tariffs coming down obviously the usage goes up. So, there would be some kind of a reduction and then increase on the volumes but we would still see may be a 20-25 percent run down on data. Then on the voice as I said depending upon, if it is pure free voice and not subsumed into the IP networks which is the part of the data plan then it could have a substantial impact on the voice revenues.Prashant: Purely in terms of technology and what technology and the spectrum they have is able to support is voice going to be the quality essentially, going to be good or is there a technology problem there?A: 4G on 2,300 is obviously for voice, it is always a challenge. 2,300 4G provides you a very good data capacity and a data experience. Data coverage and seamless data coverage becomes a challenge. There is a lot of spectrum which is on 1,800 they have and there is some intra circle roaming (ICR) deal which I believe have been done. We need to see, I am sure there is a fall back network of 1,800 and the testing of the quality also is with scale. So, I think the next few months are really going to be a good test on the customer experience services with respect to network quality.Ekta: In terms of incumbents spending a lot more on investments as well as spectrum how would that change things?A: May be there could be an immediate impact on the lieu of the auctions where we have almost USD 80 billion of spectrum on sale. So, it does would have an impact for sure. Suddenly we have seen a lot of impact; media itself reported almost Rs 14,000 to 15,000 crore loss to the sector market cap in the last one day. So, with these kind of data tariff plans and the impact of that on the profit and loss if that was to continue for longer term will certainly have an impact on these auctions. Remember we still have a lot of foreign participation in the India telecom sector. This is most of the companies which are participating in the auction are heavily leveraged. There is ability of them to draw more funds but they are heavily leveraged. Even if the Department of Telecommunications (DoT) would give them the ability of funding and they don’t have to go and take external debts it could take some balance sheets of the curve if this were to continue for longer time. The mood was anyway not great because of the 700 pricing now with this event I am sure it would impact on the spectrum auctions.