Stock Market

Jio plans are awesome; happy days ahead for customers: Pros

Speaking to CNBC-TV18 Sanjay Kapoor, Former CEO, Airtel said that the biggest hurdle for incumbent operations will be to make some long-term choices in technology. 

Today, at Reliance Industries ‘ 42nd Annual General Meeting, Chairman Mukesh Ambani announced an ambitious growth path for Jio, offering, among others, free voice and data services during the soft launch from September 5 till December 31.

Kapoor also said that he didn’t think bringing prices down would be the answer. “We have a huge population, and we must not get the prices to a level where the industry won’t make money.”

Talking about Jio, he said its strategy is all about inducting new customers which is aggressive.

Mohandas Pai of Manipal Global Education, also said that Jio plans are the most disruptive for the industry. It will help create a single, unified nation, he added.

“It is happy days for the consumers,” he said. His advice to Sunil Bharti Mittal would be to tell him to improve his services, he said, adding that the best player should win.

TV Ramachandran, President, Broadband India Forum said that Jio plans are awesome. “I haven’t seen the likes of it in India.” He also said that the level of drop in tariffs is awesome, adding that he will see an upheaval in a short time.

Romal Shetty, Partner of KPMG said that this move is transformational, referring to Jio’s offerings. He also said that if you provide free services beyond a point of time, both the operators will have to pay interconnect charges. He also commented on how it was necessary for spends to come down significantly for operators.

The device experience is also equally important, he said. When you provide a cost free of cost for three months, and then you start charging, the device or the phone’s experience is also important, he said. 

Below is the transcript of the CNBC-TV18 interview with Sanjay Kapoor, Former CEO, Airtel; TV Ramachandran, President, Broadband India Forum; Romal Shetty, Partner, KPMG.

Prashant: How significant the shift is this, how huge a change is this going to be for the sector?

Kapoor: Well, I think to begin with nobody anticipated an incremental announcement by Jio. Everybody knew that the announcement that they will make will be substantial and also transformational and that exactly what has happened. So today’s announcement essentially triggers off some fundamental changes in the way industry is going to perform and is going to be structured.

First and foremost it is the beginning of bucketing plans in India like the western world. So now you pay for a bucket and in that bucket is some data, there is unlimited voice, there are some free content and services and messaging etc, etc and they keep increasing the bucket size increases with the quantum of freebies and data that you consume. Now that’s a fundamental change from the sort of pricing that we have had in this country. It also leads to simplification from a consumer perspective, because customers now got transparently an amount that he pays and he knows that he can consume what he is being promised within that amount without being worried about anything other than that.

The second thing that has happened is that there has been an announcement on voice being free for life. Now I am not 100 percent clear whether there will be no data charge to it or will there be a data charge to it, which means if I have reached the end of my pack, will I still be allowed to make free voice call or there is going to be some additional tax that I need or there will be some deduction that will happen, so that’s not clear to me.

If it means that there will be deduction of data then voice is not truly free, instead of paying for voice I am paying for data. But as said completely free which is outside the deduction of data and the quantum of data that I deduct, then it is a bigger problem for the industry, because there are 75 percent revenue to 80 percent revenues of every incumbent operator that comes from voice and to tackle this menace without disturbing your existing revenues is going to be a big problem.

Surabhi: Are the data tariffs that we have seen announced today, are they sustainable purely from a business standpoint and if incumbents come down to those levels, then what’s the sustainability that we are talking about?

Ramachandran: I think what I have heard today of this launch and what I was listening into Mr Ambani really is something awesome. I don’t think we have seen the likes of it definitely not in India, most probably anywhere in the world such a set of announcements.

Of course, I have a slightly different view that free voice was not maybe expected. It was fully expected. We knew it was going to come free voice packet with data, but there was some very significant extras with that in terms of the level of data tariffs which has come in Rs 0.05 per MB, it’s really quite surprising that level of drop in tariff. I think this is going to see a big upheaval and for a short time, but what you want to know is really how sustainable it will be. I think at this data rate free voice is good, that’s the way the world work.

Surabhi: Are these tariffs sustainable from a business standpoint?

Shetty: If you provide free services beyond a point of time and remember here in voice for example, you will have interconnect charges, so you will have to bear the interconnect charges. Yes, that regime may go through some changes, but you still have to pay for that.

I think this is truly transformational, I completely agree with it in terms of what has been done, this is revolutionary. There is no doubt about that, but remember it is also a phase where customer acquisition for Jio is very, very important, so to ensure that people come on to the network experience that network. It is important to get them on, so beyond a point of time you can’t have everything free. You will have to bring in the charges and like Sanjay mentioned even voice, I think Voice over LTE (VoLTE) called normally both parties do incurred charges, so it is not necessarily there.

There is also a silver lining I believe personally, because if you look at the lowest tariff plan of Jio which is Rs 149, there is of course a Rs 19 plan which is per day, but at Rs 149 tariff plan. Now that if you look at the data amount which is provided may not be enough, so even if you take Rs 50 and get 1 GB more etc, you are talking about average revenue per user (ARPU) broadly of course it is spent in a month.

If you look at the big Airtel, Vodafone, Idea their ARPUs also, blended ARPUs not the postpaid one, but the blended ARPUs are between Rs 180-195, so not necessarily the entire spent is going to come significantly down. It is just that you are moving from a very voice led model to a very data led business model.

Prashant: You want to react to what Mr Mohandas Pai said, Rs 225,000 crore industry’s revenues, a lakh will be contaminated, Rs 50,000 crore will be lost, because of big numbers and it is a top down way of looking at things, but would you reckon those numbers are fairly right?

Shetty: It is very difficult when you provide a service free of cost for the 3 months and to attract subscribers and then you start charging. Also remember, I think the device experience is also very important. There is no point in watching a great movie, HD movie on black and white TV. So you could have the entire thing for the customer experience, to the network experience and I think very important thing that most people seem to be overlooking is nowhere in the world has a rollout of this kind happened in as diverse a country as India. This is big and this technology has not been tested that much at this scale.

Prashant: You began by saying it’s difficult when you give something for free and then you start charging for it. Are you saying its problematic?

Shetty: I am saying that not necessarily than the same adoption will be there. It is difficult to say that all the revenues will move away. What I think will happen is definitely the smaller players will find it extraordinarily difficult to survive. They will really be struggling and of course the bigger player will have to reduce some of the charges and will have to do some of the bundling, which will definitely have an impact on the revenues, but I also see another thing which happens, when Reliance first launched in the 2000s you had a huge amount of people taking up voice connections. Similarly, I think and it helps the whole industry. Similarly, I think this time the data usage will go up and data revenue will also go up, which is today only just 23-24 percent. My view is it will probably go up to 45-50 percent.

Prashant: Somebody who watches the space as you got insights into the digital revolution which is taking place in pretty much all spheres what is your view of what has been announced today and how revolutionary I this going to be?

Pai: Let me say first that what has been announced is truly disruptive of the existing industry. It is transformational for the industry and for India and will help create one single virtual nation for the first time in all of civilisation history. It is a very big move. You are now giving an affordable device into the hand of every single Indian connecting them with rich data almost unlimited data access to the internet at a very low cost. Both the device and the running cost will be very low and that will transform this country, empower every single Indian, give educational access, health, e-governance, e-commerce, everything to everybody at a very reasonable cost. It is very transformational.

Now, what happens to the industry. The industry\’s revenues are Rs 2,25,000 crore out of which I reckon Rs 1 lakh crore will be contaminated by pricing and maybe Rs 50,000 will disappear for the incumbent over the next two years. The incumbent players have been giving a lousy service, high call drops, not enough data, almost cheating all the customers including me. We are all very upset, we are waiting for Reliance Jio to come and so many offers are going to shift and the subscription impact is going to be tremendous.

Now as far as Jio is concerned I would say in the next 12 or 24 months an average revenue per unit (ARPU) of Rs 195 to Rs 179 for some incumbents would come down and settle at Rs 150 because Rs 150 for data maybe about 3 GB or 4 GB or 5 GB is very reasonable and that could be the minimum consumption for every individual for a month. I would estimate that the challenger that is Reliance Jio will get 500 million customers in about four months, earn Rs 7,500 crore a month, Rs 90,000 crore a year. So, the total revenue of the industry could go up from 2,25,000 crore to maybe Rs 3,00,00 crore because the penetration will go up, data charges will go up despite the contamination. So, in short, the default standard for India will be 4G, the default standard for India will be intelligent networks which could go to 5G, downloading software and not changing any hardware.

Please remember in the intelligent network you can change the software, you don\’t have to change the hardware. So, we could see 5G coming in the next 24 months or 36 months which will be a software upgrade and not a hardware. Existing incumbents who were there in 2G, 3G and all kind of stuff will have to go to minimum 4G and that will be a tremendous change for them. So, happy days for consumers, incumbents challenged, no easy money to be made. 39 percent operating margins gone, it is fantastic, it is transformational.