Jio launch a turning point in the Indian market

On September 5, 2016, Reliance-owned Jio launched its mobile service in India to much fanfare, announcing a ‘Welcome Offer’ that provides a Jio customer free calls, free data and free messaging until December 2016.

Jio has managed to beat the hype with its ‘revolutionary’ tariff plans that are set to disrupt the traditional service provider business models of charging for voice and data separately. Claiming to be the country’s first pure IP-based service provider, Jio has announced free calls and free messages to any network in the country for all its customers across all tariff plans, choosing instead to charge only for data consumed. The tariff plans range from INR 149 (US$2.20) for a 300 MB plan to INR 4999 (US$75) for a 75GB XXXL plan, and tariffs above INR 500 (US$7.50) bundled with free WiFi hotspot and unlimited night-time data allowances.

The announcement was reminiscent of a similar launch in December 2002, when Reliance launched Reliance Communication (RCOM), the first service provider in India to offer unlimited free incoming calls on any network, disrupting the market and pushing other service providers to withdraw charges for receiving calls. Jio’s decision to charge only for data, while keeping other services like calling and roaming free, is poised to repeat the showdown between operators and push data prices down drastically.

Jio’s strength lies in its nationwide coverage, rivaled only by Airtel, a clear indication of the degree of impact it will have on the market. Operators nationwide have slashed rates and offered perks to ensure consumers do not jump services. Airtel is additionally offering free international roaming, while Vodafone and IDEA have launched new data plans offering 10GB of data at the price of 1GB. The move by Jio could herald a series of changes in the way customers are billed, moving from a triple play – voice, messaging and data - to a single bundle of data with free voice and free messaging.

The correction in pricing will impact data revenues and severely impact ARPU for all operators across the country. Canalys expects to see quicker consolidation between service providers as competition increases and smaller service providers find it difficult to compete with the offers and perks offered by a nationwide LTE operator, such as Jio or Airtel.

Jio aims to sign 100 million users by end of trial period

The ‘free data’ offer serves as a catalyst for user acquisition. India’s predominantly prepaid market is easily swayed when operators drive bargains that can save even a few rupees. The potential savings for a user with Jio will range between INR 2400 to INR 6000 (US$40 to US$100) for the four to five months of the free offer. Jio expects to sign 500,000 users per day during the initial period, ramping up to 1 million sign-ups per day in order to achieve the goal of 100 million users ‘as quickly as possible’. There are two other developments that contribute to speeding up the user acquisition.

First, Jio has simplified the sign-up process for a Jio SIM card with a mobile app and by leveraging the nationwide unique identity program – Aadhaar. Aadhaar is a 12-digit, unique digital identifier issued to a citizen of India after they provide a valid address, ten valid biometric fingerprints, two iris scans and a photograph. Aadhaar is expected to help quicken the process of verifying the address and identity of the user by providing just the Aadhaar number and verifying the fingerprint against the database at a SIM card point-of-purchase, a Reliance Digital store or a local reseller.

Users typically sign up for a Jio SIM via its ‘MyJio’ app, following which they receive a coupon with a unique barcode that can be used to purchase the SIM. This unique barcode generation will fend off a black market for Jio SIM cards, at least in the distribution phase, as Reliance would have information on who the card is being distributed to in real-time.

Another supporting factor is the country’s support of ‘Mobile Number Portability’ (MNP) since July 2015, which allows users to retain their mobile numbers when moving between circles (different states) or services (different operators). For Reliance Jio, Mobile Number Portability is a boon as users can move to Jio without changing their mobile number. As of June 2016, the Telecom Regulatory Authority of India has received over 200 million MNP requests. This number is expected to spike in the second half of 2016 as more consumer’s port to Jio.

Consumer trends set to change as data gets cheaper

According to the TRAI, as of March 2016, the number of wireless internet users in India stands at 322.2 million, far less than the total of 1033.63 million wireless users. The penetration of wireless internet is even lower in rural India, where of 444.84 million subscribers, there are 111.94 million internet users. Reliance’s extensive digital retail network of 3,383 stores, as of June 2016, complements the presence of Jio’s presence in 18,000 towns and 150,000 villages across India, where there is maximum potential to encourage data usage.

The falling price of data usage is expected to drive favorable usage behavior among consumers. This is a good opportunity for high-data usage apps - like video - to leverage the free data period and offer ‘free trial’ periods of their own. In this regard, YouTube’s GO feature, launched in India last week, is to cater to offline-streaming in pockets of poor connectivity rather than to bypass high data charges.

Smart phone vendors will see opportunity in upgrades and services

Jio’s entry has played its part in educating consumers and brings into focus the distinction between LTE and 3G/2G smart phones. Its 4G-only license is limiting in that only VoLTE-enabled smart phones would be able to use their native calling application to make or receive voice calls. If a user’s smart phone doesn’t support VoLTE, Jio recommends using ‘Jio4GVoice’, an app-based solution to the problem. Reliance’s launch of self-branded ‘Lyf’ smart phone has filled the void of low-cost, VoLTE-enabled smart phones to cater to an underserved segment.

The list of supported 4G devices on Jio’s official website has piqued interest in LTE smart phones that are VoLTE enabled. It has also caught the attention of a few smart phone vendors that have begun to feature “VoLTE-enabled” prominently in their marketing material. As of September 2016, Intex and Lenovo have the largest number of supported handsets listed on jio.com. More than 80 percent of all devices listed cost below INR 20,000 (US$300), with the average price of all listed devices at about INR 11,750 (US$176).

Canalys advises smart phone vendors in India to play to their strengths and strive to drive upgrades to improve on their ASPs. The offer period presents a unique opportunity to showcase the capabilities of an LTE-enabled smart phone. Reliance’s own service ecosystem - that includes movies, music, news, television and messaging - will play its part to expose first-time smart phone users. Vendors like LeEco, that are reliant on their entertainment services to differentiate, must focus on highlighting their offerings as data costs would be less of an issue.

In the second half of 2016, Canalys expects LTE smart phone shipments to ramp up quickly. The LTE market share in Q3 and Q4 is expected to touch 73 percent and 76 percent, respectively, as Samsung and Micromax will transition faster to a bigger LTE portfolio. Canalys maintains its long-term view for smart phone growth, which had already taken into consideration the impact of Jio’s entry, growing to 195 million units in 2020.

Smart phone vendors must also look at partnering with Reliance Digital and, if possible, look at Jio’s own distribution chain, which will follow the FMCG distribution chain in India. Increasing marketing spend across the lower-tier cities will help. The fact that the holiday season in India is around the corner, is an added bonus. Partnerships with Jio are highly unlikely, as the service provider is aggressive in ramping up on its own and will not rely on co-branding to grow. However, preloading Jio’s apps on their smart phones is an option to consider.

Jio’s long-term sustainability is yet to be proved

Despite the price benefits, Jio will struggle to appeal to businesses in India that require higher quality communication service, both in voice and in data. Resellers will be wary to bundle connectivity supplied by Jio unless it can guarantee them an enterprise-class quality of service. In the long term, Jio must ensure technology vendors and their channel partner ISVs use Jio as a connectivity partner in their LTE-based solutions.

In the short term, Jio’s consumer traction will help it build the subscriber base and expand its nationwide LTE network. In the long term, however, Jio’s success will depend on the quality of service it provides as consumers will be quick to dismiss the ‘offer’ as another gimmick if the network does not live up to its promises. Jio’s ‘virtual’ merger with RCOM in the country, where the two companies are in agreement to share network, spectrum and infrastructure, should help in this regard.