Reliance Jio’s launch will accelerate consolidation leading smaller telcos to exit market overtime. Currently the top 3 telcos have 70% of total market share with remaining 8-9 telcos sharing the remaining 30% market share. The key value proportion of smaller telcos to consumers has been cheaper offerings than larger telcos but sometimes with inferior coverage. With Jio likely offering cheaper tariffs than existing telcos in the market, we believe that it would lead to subs churning from Jio. Larger telcos may be able to retain their subs by providing better coverage, challengers will struggle leading to acceleration of consolidation.
Jio’s Impact on Mobile Data / Broadband With Jio’s launch, if the data market expands then it would also help the top 3 telcos to benefit from the data growth. While it would lead to higher capex investment, we think that the revenue growth would more than offset the investments made. There is room for Jio and the top 3 telcos to co-exist in the market and if there is no irrational price-war.
Voice / OTT VoIP Calling With improvement in smartphone penetration, we see increased risks of consumer usage moving away from voice/SMS to data. In this scenario, we believe that the consumer usage will accelerate away from voice led by free VOIP/video calls being offered by Jio. This would lead to industry voice growth declining from current 5-6% to 0-1%. As voice is a high margin business, we believe that a move away from voice revenues will impact margins and also lead to higher investments in data to meet the excess data demand.
What if Jio’s Network performance is Poor ? Initially, if Jio’s network coverage is not good then we see risks of consumers churning away from Jio and going back to their existing telcos. In such a scenario we see the A-Vo-ID operators benefiting as they do not have to aggressively cut tariffs or spend to counter Jio’s threat. However we consider this scenario to be a near-term relief one as we believe that with US$13 bn+ investments in the telcos domain, Jio is unlikely to remain a fringe operator and hence would likely have an aggressive approach later.