India is heading for a massive telecom shake-up after Reliance Jio — owned by the country’s richest man Mukesh Ambani — launched full services, offering free calls and promising data at a fifth of market rates.

Subscribers, in fact, are being offered free data, voice calls and messages on a 4G network till Dec 31, after which they will be able to choose from nearly a dozen tariff plans. Monthly plans start from as low as 149 rupees ($2).

Initial reaction, not surprisingly, was positive with many people queuing outside shops in different parts of the country last Monday to get hold of a Jio connection.

New player’s low-priced mobile plans put pressure on incumbent operators

Engineering student Arun Sathiya, who was among those who got a connection two weeks ago during a preview period, said he was ‘really happy’ with the offers but was still testing the quality of the service.

“I am very happy with the tariff plan. I will be able to make voice calls for free. I have to see how Jio performs over the long term,” said Sathiya, who plans to cancel one of two other phone subscriptions if he is satisfied with the new service.

Ambani, who unveiled details of his new venture to shareholders last week, has set a target of acquiring 100m subscribers as soon as possible.

Consisting of almost a dozen operators, India’s telecom sector has been, for the most part, a success story.

Over the last 15 years, widespread coverage, low rates and cheap phones meant that even the poor have had access to a mobile phone and plan. Over a billion people are currently hooked up in a country of 1.25bn.

India also ranks behind only China with a smart phone user base of 220m people.

The launch of Reliance Jio will put pressure on other telecom operators to come up with matching deals, according to experts who also expect an increase in the smart phone user base.

“There is immediate pressure on incumbent operators to either match tariffs or come up with a strategy to deal with Jio,” said Rishi Sahai, managing director of investment bank Cogence Advisors.

“The focus (in the telecom sector) has been on voice calls; now they are turning around and saying, pay for data. It will drive more people to get onto the Internet. It will disrupt the market,” he added.

Pankaj Mahindroo, national president of the Indian Cellular Association, called it a ‘game changing’ development, especially with regard to demand for 4G-ready smartphones.

The Reliance group — a conglomerate with interests in everything from oil and gas to retail and telecom — says it has invested 1.5tn rupees to build the mobile infrastructure. Ambani called Jio “the biggest investment in the history of Reliance”.

But questions remain over whether it can sustain its low prices.

Competitors like Bharti Airtel and Idea Cellular, which have seen share prices decline following the announcement of Jio’s plans, are also expected to slash rates or offer new packages.

“In India, a challenger has never been able to beat a leader in the market. The four months (of the free offer) is a customer acquisition strategy... Data (rates) will not remain the same; they will go up,” said Romal Shetty, head of telecommunications at KPMG.

But Shetty said many smaller players may get wiped out by Reliance Jio’s entry into the telecom sector.

—The Straits Times/ANN

Published in Dawn, Business & Finance weekly, September 12th, 2016