Reliance Jio’s ₹303 plan may not be a major disruptor as it targets the upper and middle end of the market, a segment that’s not easy to churn.
Most of the mobile users in India pay less than ₹150 a month. About 20 per cent of mobile users pay more than ₹300 a month. While the offer from Reliance Jio could be attractive to this 20 per cent users, churning high end customers has never been easy.
Analysts at PhillipCapital said, “Jio’s strategy to induce churn and become the primary SIM especially for the high value customers, with its prime membership plan will face challenges as its voice network is not fully stabilised. We believe that the telecom market will become more even now, as the last 6 months saw significant traffic diversion to Jio due to its free offers. Jio will continue to gain volume market share but the pace of its gains is likely to reduce significantly.”
According to analysts at J P Morgan, the post-paid/high-end pre-paid segment does not comprise blind value-seekers. “This is also a more quality-conscious segment that is less reluctant to move than the lower-end subs. For this reason, RJio has to be able to tick all the quality/customer satisfaction boxes (both voice and data) to draw this segment away from peers.”
J P Morgan added that RJio’s focus on higher revenue subscribers could, however, trouble incumbent players’ at the top-end of the market. For example, in Airtel’s case, the top 25 per cent of its subscribers account for 50 per cent of its revenues.
Compared to the average revenue per user of ₹180-200 per month, subscribers in the top 25 per cent segment spend ₹380-400 per month. “This top 25 per cent segment is now fair game for RJio. Bharti’s data subs in the ₹350-500 ARPU range might shift to RJio’s ₹303 plan,” analysts said.
Analysts at Credit Suisse said the RJio tariff plan putts an effective ‘cap’ on ARPU for all higher end subs of all operators. Even if incumbent operators retain these customers, it might be so after the monthly charges are brought down close to RJio’s plan.
Balancing factorThough Jio’s strategy is very aggressive, incumbent operators have a lot of experience in managing price wars. The other big dampener could be the average quality when it comes to voice calls. “RJio’s network is still stabilising and experience of customers on RJio’s voice network has not been inspiring. Also, the current download speeds on Jio’s network are lower as compared to existing incumbents. Thus, the strategy to churn high value customers, although in the right direction, will see significant operational and execution challenges,” said PhillipsCapital.
RJio has also imposed a daily cap of 1GB per user. While this maybe okay for most users, heavy video users may this inadequate.
The battlefield is much more even now with Jio’s low-priced offers versus incumbents’ better customer experience and ability to fight price wars. We believe the traffic diversion to Jio should come down from Q1FY18 onwards, and significant decline in revenues should get arrested for the incumbents.
“From Jio’s perspective, it would now be interesting to see how it manages the transition to paid usage, without seeing a sharp drop off in subscriber base. The next 30 days will probably be used to gauge interest levels to these new price points, as also to market these to existing subscribers,” said Credit Suisse.