On Thursday, billionaire industrialist Mukesh Ambani practically started a bloodbath in the Indian telecom industry by announcing his new mobile network – Reliance Jio.
While Jio has been in the offing for a long time now, its promised rates for high-speed data seem too good to be true as existing telecom companies have been raising their data prices over the years rather than bringing them down.
Things, however, seem all set to change with the disruptive pricing that has been announced by Ambani.
The big price war that everyone predicted is already underway with major companies like Airtel, Vodafone and Idea slashing data charges and offering more benefits for the same price.
But Jio still has the trump card: free voice calls for all subscribers. It will only charge for data, Ambani announced, while companies like Airtel and Vodafone still make about 70% of their revenues from voice calls.
Should that be enough for you to switch networks and move to Jio?
Jio won’t have surge pricing or blackout days, Ambani claimed on Thursday, and added that it will even offer unlimited free data to subscribers during night hours.
But there are several things to watch out for – the announcements made on Thursday are likely to be only indicative and could come with a lot of fine print, which might make Jio seem less attractive once it is launched.
Moreover, even if it remains at the prices announced by Ambani, Jio is unlikely to entice a lot of data users. But it could end up capturing a large mass of the voice call market that has been paying a great deal more than the rates Jio offers.
As it turns out, India’s voice call rates are already among the lowest in the world.
The fine print
For instance, major telecom companies charge an average of 65 paise per minute for voice calls. The rest of the world pays anywhere between Rs 1.3 per minute (in Hong Kong) to Rs 45 per minute (in Japan), according to research by the think tank New America released in 2010.
In India, state-owned carriers such as Bharatiya Sanchar Nigam Limited offer unlimited calling in certain circles like Madhya Pradesh and Haryana on top of the broadband subscription as an add-on pack of Rs 48.
Carriers like Airtel and Vodafone also have unlimited voice calling packs that start from Rs 1,000 per month and come bundled with data as well.
This means that Reliance is not the first company to make voice calls free. But it is definitely the first one to do it for everyone, irrespective of their plan and usage. However, it remains to be seen how effective their network and customer service turn out to be since these two things have always been the pain-points among mobile subscribers.
While one might be tempted to switch to Reliance for their claim of providing data as cheap as Rs 50 per gigabyte, it needs to be taken with a pinch of salt since this is not an actual rate but the effective rate one will end up paying for every GB of data consumed on their most expensive plan that comes for Rs 5,000 per month.
A discussion on the social media forum reddit’s India section has already pointed out some other problems with Jio’s data packs. For instance, the company claims to give unlimited data during the night but the window for availing it is only three hours long between 2 am to 5 am. User ribiy summed it up as follows:
For a data user, Reliance Jio is not impressive. If the usage is more than 1 GB per month, then the Rs 149 pack should not even be considered because it has only 300 MB. In the next pack, Jio offers 4 GB data for Rs 499 which is not revolutionary, but since it says night time is unlimited, I think it can be called “evolutionary”. But still that is not such a great incentive to switch. In the next plan which costs Rs 999, it offers only 10 GB, whereas BSNL gives me unlimited data for almost the same price.
A comparison with other carriers for their charges for 3G/4G data showed that Jio offers more data than many others for the same amount of money. Scroll looked at the data plans of major carriers that come for Rs 500 or less and found that while Airtel and Vodafone provide about 2 GB-3 GB of data, Jio is offering 4 GB. However, Anil Ambani’s Reliance Infocomm already outdoes Jio in terms of data prices as it offers 5 GB at the same prices.
Cost benefits
Despite the low rate for voice calls, though, India’s data charges are among the highest, especially when compared to per capita income, said an analysis by telecom research company Analysys Mason.
The company said that mobile operators must drop telecom prices in the next few years to bring them close to the levels seen in the developed markets to boost the telecom economy. Consumers in the developed markets pay about 0.45% of their per capita income as opposed to 2.6% in India.
However, another analysis done by the International Telecommunications Union last year using data by World Bank showed that absolute charges for data vary widely across the world.
What's next?
In India people pay about half a rupee for a megabyte of data consumption on average while in the US they pay about Rs 6.40. Similarly, the rates in China, UK and Mexico vary between Rs 2 to Rs 5 per megabyte. Reliance Jio's offering of 5 paise per megabyte could make Indian tariffs fall steeply but it remains to be seen if that’s going to apply to all internet packs or just select few.
Already, other telecom operators are in the process of tweaking their offerings to provide more value to their customers so as to retain them as Jio goes live on September 5. But analysts say that there is more to this price war than appears at first glance. Deepak Shenoy, a financial markets analyst and industry watcher who runs Capitalmind.in, wrote that Reliance might slash its tariffs further at the time of its final launch.
Shenoy told Scroll that Jio might come up with more plans and offerings and the current plans are only indicative and a signal from Mukesh Ambani to industry peers that Jio is going to be a big threat – unless they start providing more value to their subscribers.
“If I were Ambani, I would not reveal my actual pricing during the time when my services are free for all, that is, December 31,” Shenoy said. “It’s a ploy by Jio to entice customers and then offer them something even cheaper when the existing telecom companies are done bleeding money.”
In case Jio decides to be cheaper than what it has indicated so far, Reliance will have to shell out more money from its pocket to pay for cheap data and free calls but Shenoy thinks that will not be a problem.
“Reliance has big pockets so they can afford to pay for customers for a long time,” he said. “Even if they have 1 crore people subscribing to a Rs 100 plan, that’s a revenue of Rs 100 crores a month. Moreover, Jio plans to get consumers in the ecosystem and then provide them add-on services like content and games among other things, which is likely to be their revenue model.”
