Reliance Jio, Setting Off A Price War

The launch of Reliance Jio's cheap data plans will set off a price war. But will it be at the cost of the industry's profitability? By Manu Kaushik.

- Manu Kaushik

Finally, the cat is out of the bag. It’s a ferocious cat giving sleepless nights to 800-pound gorillas of the Indian telecom sector. At the 42nd annual general meeting of Reliance Industries, CMD Mukesh Ambani launched the much-awaited Jio telecom services. In his 87-minute speech, a large part of which was devoted to Jio, Ambani made a slew of announcements, including of free voice calls, which seemed to have rocked the boats of incumbents Bharti Airtel, Vodafone India and Idea Cellular.

At present, around three-fourths of the revenues of telcos operating in India are generated from voice calls. For instance, Airtel’s voice calls accounted for 70.9 per cent of its total mobile services revenues for the June 2016 quarter, while, for Idea, it was at 71.8 per cent. With its unlimited free calling offer, Jio is hitting the telcos where it hurts most. The biggest threat, therefore, is the possibility of customers migrating to Jio. If operators match Jio’s offers, it would make a significant dent on their overall revenues and profit margins. If they bring down calls to near-zero, even that would result in major losses and, in fact, they would have to pay the interconnection charges (14 paisa for wireless-to-wireless calls) from their own pockets.