Why Reliance Jio's Rs 49 plan could push Airtel and Vodafone out of the market
Since its entry into the market in November 2016, Mukesh Ambani-owned Reliance Jio has caused a shake-up that has seen India become one of the most affordable markets for availing telecom services. With billions in the bank to fall back on, Jio started a price war upon its entry that eventually led to mobile tariffs tumbling drastically.
More than a year from that day, the churn is still in progress. Though Jio's free data and voice plans have come to an end, it's strategy to blow the competition out of the water with the help of aggressive pricing strategy hasn't. Over time, the operator has introduced a number of tariff plans which have been extremely aggressive in nature – the latest being its Rs 49 plan for JioPhone users.
Fight for 50 crore 2G subscribers
This plan announced on the occasion of India's 69th Republic Day provides 1GB data and unlimited calls for a period of 28 days is one that looks to further Jio's existing attempts at wooing crores of 2G subscribers in the country who still remain out of its reach.
Being a 4G VolTE based network, the telecom operator has still to date not been able to bring on board over 50 crore 2G subscribers in the country. This plan, bundled with the "effectively free" JioPhone would go a long way in helping the telecom operator in bringing these subscribers on board.
In a market where none of the other players can afford to offer such an aggressive tariff, it's easy to understand why a plan that costs slightly over a rupee a day and promises unlimited calls can become a great disruptor forcing other telecom operators out of the game.
Why Airtel and Vodafone can't compete with Jio
While the likes of Airtel and Vodafone indulge Jio in price wars, they do so at the expense of significantly hurting their revenues. The reason behind it is the outdated network technologies that these operators use.
Much has been written about Jio's ability to dig into the deep pockets of Mukesh Ambani to force other telecom operators out of the battle, but what has received little attention is how Reliance Jio because of its lower cost margins is best suited for a long-running price war in the sector.
Despite offering tariffs that are 40-50 per cent cheaper than the competition, Jio has managed to turn profitable by posting a net profit of Rs 504 crore for the third quarter this fiscal year. This comes at a time when market leader Airtel's profits plunged 39 per cent to Rs 306 crore missing not just estimates but more worryingly dropping for the seventh straight quarter.
A major contributing factor behind this is Reliance Jio's use of VoLTE technology which enables it to use data packets to deliver calling services at a fraction of what it costs its competitors to provide calls using traditional methods.
Though it cannot be denied that Airtel and Vodafone are working overtime to fix this disparity and have already set in motion their plans to upgrade their networks to the modern standards, it cannot also be ignored that building a Jio like 4G network that stretches the length and breadth of the country will not happen overnight, and more importantly will come at a substantial cost, thus only creating more headaches for Jio's competition.