Reliance Jio Infocomm which is in advanced stages of Testing its 4G LTE networks is expected to launch its Telecom Services in late 2014 with the focus primarily being on data services (although they may launch Vo-LTE voice offerings). We expect Reliance Jio, Being a new entrant, to launch an aggressive offering to gain traction in the already overcrowded telcos market. (Historically, we have seen all new telcos use this approach to gain traction). This may force existing telcos to reduce tariffs to match the aggressive offering.
We believe any new competitor like Reliance Jio who could potentially enter the data / high-end voice market will likely focus more on urban areas (like metros) in its initial phase of rollout as these markets have more high-end subscriber. We see risks of a material decline in tariff when Reliance Jio launches its service affecting Airtel and Vodafone the most as they are the market leaders in Metro Circles.
Although we do expect Idea / Reliance Communications also to get impacted, we believe the extent of such impact would be relatively lower. Furthermore, we note that for a telco like Idea, a larger proportion of its revenue comes from rural areas (where we are unlikely to see R-Jio having an aggressive rollout approach given its focus being mainly data).
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In 2009/10, when competitive intensity picked up led by the launch of services by 4-5 new telcos (who got licenses in 2008) and when dual technology telcos like Tata DoCoMo launched per-second billing – the impact on Airtel was more than that of Idea due to Airtel’s high exposure to metros / urban areas where new operators launched their service and better execution by Idea Cellular relative to Airtel.
We also expect the incremental newsflow in the Indian telcos to focus on any new investments made by R-Jio (like leasing towers from Viom recently, a Tata entity). Such newsflow, in our view, is not positive for the A-Vo-Id Cartel.