A mobile bill that is lower by 50-60% for the end customer. That is the number that is unsettling telecom companies Airtel, Idea, and Vodafone about Reliance Jio.
When the news broke yesterday on the morning of September 1st at the Reliance AGM meeting, the trends in the Airtel and Idea stock charts were mirror images of each other: they both tumbled, falling on Mukesh Ambani's announcement of free Jio connections till December 31 and tariff plans that were more ambitious, and more aggressive than what the telcos had expected.
Key was Mukesh Ambani's remark that "customers should pay for data or voice, not both." The base rate of data on Jio will be 10% of current data prices, and voice calls will be free. 4G will be unlimited at night. The blows to existing operators just kept on coming, Muhammad Ali style.
How will these companies respond? Right now Bharti Airtel offers unlimited voice only for its high-end post-paid plans. Both Airtel and Idea announced today that they will cut tariffs to keep customers. Forget growth, they are now scrambling just to retain the numbers they have. But do they have enough bandages to staunch the bleeding? The debt/equity ratio of Airtel stands at 0.5, and of Idea Cellular at 0.7, both above the ideal number of 0.4. Heavy debt on the financial statements for telecom companies mean they don't have much elbow room to respond to Jio. In May, Airtel had decided to sell over 950 telecom towers in the Congo to cut its plus Rs 80,000 crore debt.
The silver lining: the aggressive expansion of 4G in India. Airtel hasn't been able to do much for 4G expansion, and penetration is right now at 5% nationally of subscribers. Jio's entry is likely to deepen the market very quickly. Such expansion is good for the incumbents too: if customer behavior around data consumption changes to the higher side, Idea and other telecom operators will be able to ride the benefits. But its going to be a rocky road there.
