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How will Jio’s Free Unlimited Calling impact Airtel / Vodafone / Idea ?

September 22nd, 2016

jio-voice-freeJio’s strategy of FREE Unlimited Calling appears to be motivated by a desire to accelerate 4G-handset adoption in the market, rapidly build up user base, and impact the profitability of incumbents voice being their cash-cow, accounting for >70% of revenues. We expect industry voice yields (VRPM) would now see continuous dilution, driven by increase in share of 4G smartphone users, who would likely enjoy cheaper effective call rates from all the service providers.

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After the initial impact on VRPM, revenues and margins from tariff adjustments aimed at retaining the high ARPU subs, we see limited risk to the voice revenues of incumbents, based on the following reasons:

  • 4G handset penetration is merely 9-10% currently (total of 100 Mn handsets), and growing at 1.5pps per quarter. Further, there are exit barriers for existing mobile users, such as: (a) Having a corporate postpaid plan; (b) Lack of dual SIM capability in the 4G phone—though majority of 4G phones are dual SIM;
  • Lack of VoLTE capability—we reckon, not more than 20-25mn handsets are VoLTE capable currently. While Jio is also offering free calling via its OTT app Jio4GVoice or JioJoin—works with only Jio SIM card.
  • Indians are not really starved of voice, as India already has one of the lowest voice yields and highest MOUs in the world. We estimate Bharti currently offers an average of 200 outgoing minutes for Rs120
  • Switching to Jio makes economic-sense only for heavy voice users (>700 MOU). Further, Jio would earn significantly lower margins than incumbents on such users, unless MTC is slashed to 5-6 paise per minute from 14p currently.
  • Until the issues of PoI congestion and VoLTE reliability get resolved (may take a few quarters), Jio subscribers may continue to maintain their primary SIM card from BVI, and a certain level of monthly spend (Rs50-150).

We expect the incumbents to selectively offer more minutes to various user segments at the same or higher monthly spend to prevent customer churn and preserve voice ARPUs; such offers would naturally be meant for their 4G handset user base.

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