Is Mukesh Ambani’s Reliance Jio the Nirma moment for Indian telecom industry?

New Delhi – Is the launch of Reliance Jio the Nirma moment of the telecom industry?
This is how one analyst today described the disruptive tariffs announced today by Chairman Mukesh Ambani at the company’s AGM. He went on to say that such historic low tariffs could well make it the Nirma moment taken to a power of 100.

Reliance Jio promises an all–new 4G LTE network on which all local voice calls will be free forever, data will be anywhere up to 40 percent cheaper than incumbent telcos and a host of other services can be used at the world’s cheapest tariffs. From Monday, anyone can use the Reliance Jio services – voice, calls, data, apps – for free till 31 December.

Look at the similarities in what Ambani has decided to do with telecom and what fellow Gujarati Karsanbhai Khodidas Patel managed to do to detergents with Nirma, starting out from his own backyard.
A Wikipedia entry says Patel studied Chemistry and then worked as a lab technician before manufacturing this yellow detergent powder in his backyard as an after-office activity. He then began selling it door to door, cycling along in the neighborhood. Price? Rs 3 for a kilo which was about a third of the price at which leading detergent brands were selling then.

The high quality and low price of the detergent made for great value. Fuelled by housewife-friendly advertisement jingles, Nirma revolutionised the detergent market, creating an entirely new segment in the economy for detergent powder.

At the time, detergent and soap manufacturing was dominated by multinational corporations with products like Surf by Hindustan Unilever, priced around Rs 13 per kg. Within a decade, Nirma was the largest selling detergent in India, beating back powerful MNCs with deep pockets and immeasurably large market penetration.
To be sure, Reliance Jio is no backyard operation and its promoter is already the country’s largest private enterprise. But the potential disruption it could bring to India’s telecom market – which already has the world’s cheapest voice tariffs – may be multiple times bigger than what Nirma did for its competitors.

Here are some market disrupting tariff announcements made today:
1) Free voice calls and roaming charges, lowest tariffs in the world for international calls;
2) Data tariff will be as low as 5 paisa per MB, a tenth of the current tariff;
3) The Reliance Jio plans will range from Rs 149 per month to Rs 4,999 per month;
4) For students, Reliance Jio will offer 25 percent more data;
5) No surge pricing on Diwali or New Year, simplification of myriad and confusing tariff plans into just 10 plans;
6) One million WiFi sports across the country by the middle of next year;
7) Reliance Jio will also provide unlimited data for its customers at night;
8) Affordable 4G Lyf handsets available at prices starting at Rs 2,999.
Rajan Mathews, the chairman of COAI which is lobby group of incumbent operators, put up a brave front when he said that these low tariffs were indeed aggressive but were not really “killer” price points and would not kill competition.
“I don’t expect head to head adversarial pricing by incumbents (after Reliance Jio’s tariffs) but clever offers which will allow consumers to mix and match according to needs….some features like simplicity in tariff structures will be good for the industry though service quality will remain the key area to watch out for,” Mathews said to CNBC-TV18.
Another analyst pointed out that when the incumbents begin to compete on such low tariffs, this will mean “destructive competition” at its best. “True, incumbents will have trouble making money but how will Reliance Jio break even at such low tariffs?” he wondered.
Nitin Soni of Fitch Ratings said since the proposed tariffs will mean a 25-30% reduction in data charges, the margins of incumbents could drop by as much as 250-300 basis points.
It is clear that the arrival of Reliance Jio will lead to more than just tariff disruption for the big daddies of telecom like Bharti Airtel, Vodafone, Idea. Their data earnings will fall as they are forced to match the lower price points on Jio network, they will consequently have to increase capex spends and it is also possible that they shell out mega bucks in the upcoming spectrum auctions to beat back the Jio offensive.
For the consumer though, the Reliance Jio arrival should be good news as tariffs will fall across the board for data and voice comes free. Mathews contested Ambani’s assertion that Jio’s pure play 4G LTE network is superior to the networks of incumbent telecom operators who have only now migrated to 4G. “For data networks, increase in customers means network suffers. Also, voice on an all-data network is less efficient than on a hybrid data network,” he said.
Reliance Jio is already locked in a dispute with the incumbents on the point of interconnect. It has accused incumbents of not releasing sufficient interconnection ports during its test run of services while the incumbents have dubbed its testing of network as an effort to bypass regulations. The matter is right now being studied by both, TRAI and DoT.
Mathews made it clear that unless there is clarity on whether the free run consumers are being offered from 5 September until 31 December is a commercial launch of Reliance Jio’s operations or not, the trying time for voice customers on Reliance Jio network will continue. Ambani said during his speech that last week alone, there were five crore call failures on Reliance Jio network due to interconnect issues.