Telecom War: How Ambani's New Strategy Could Hurt Airtel InvestorsMarch 18,2023
It was on 5 September 2016, Mukesh Ambani launched Reliance Jio using one of the most disruptive strategies in the business world. Then India had almost 342 million smartphone users, as per Statista; in 2023, the figure stands at 1.07 billion.
In 2016, Bharti Airtel ruled the telecom market. After the launch of Reliance Jio, in December 2022, Bharti Airtel's market share dipped to 23.58 per cent from 24.07 per cent a year ago. Vodafone's market share slipped from 19.15 per cent in 2015 to 18.16 per cent in 2016; and Idea Cellular's market share contracted from 17.01 per cent to 16.9 per cent. Meanwhile, Reliance Jio ended the year with 6.4 per cent market share.
Six Years Later
As of 31 December 2022, Reliance Jio leads the race with 37.14 per cent market share; Bharti Airtel follows with 32.16 per cent market share; the merged entity Vodafone Idea takes the third seat with 21.11 per cent market share. (Source: TRAI)
Undoubtedly, the launch of Reliance Jio shook the entire industry. In six years, Mukesh Ambani was able to capture the market that was long protected by dominant players.
If you take the service provider-wise market share of broadband (wired and wireless) services as on 31 December 2022, Reliance Jio commands 51.93 per cent market share; followed by Bharti Airtel that holds 28.17 per cent market share; and Vodafone Idea that has 14.89 per cent market share.
Ambani's New Strategy
The chairman of Reliance Industries, Mukesh Ambani is not done with conquering the prepaid telecom market alone; now, he's looking forward to dominate the postpaid market too. For long, Bharti Airtel has been the king of Indian postpaid telecom market.
How's Mukesh Ambani planning to dethrone Sunil Mittal's Bharti Airtel in the postpaid market? By lowering the prices. Let's be clear about one thing. In 2020, Reliance Jio had introduced low-cost postpaid plans, but Bharti Airtel's subscriber base only increased. As per Telecomtalk, Bharti Airtel added 1.4 million new postpaid subscribers in the last two-quarters (last six months) of 2020.
One of the reasons cited by Telecomtalk in its analysis on why Reliance Jio failed to rupture Bharti Airtel's market share is that the postpaid customers or the "premium customers" aren't necessarily looking for cheaper tariffs, but excellent network.
Reliance Jio has freshly launched postpaid family plans starting from Rs 399 and Rs 99 for every add-on connection. The new plan is offered by Reliance Jio at a 30 per cent discounted rate compared to other competitors. Ambani's new strategy comes at a time when telecom investors are hoping for tariff hikes in the already stressed sector. This move could delay the tariff hikes and pose downside risk for Airtel investors.
"Jio has so far been unable to replicate its prepaid success in the postpaid category (~7.5% of subs and ~10% of industry revenue), but we believe its new family postpaid offerings are attractively priced and could lead to renewed price competition in postpaid," said Kotak analysts Aditya Bansal and Anil Sharma as quoted by ET.
Bharti Airtel chairman Sunil Mittal said two weeks ago that a rate hike is likely to happen in the middle of 2023.
"Lot of capital has been injected (into Airtel) that has made the balance sheet strong but the return on capital of this industry is very low. That needs to change. We are talking of small increments that need to come in the Indian tariff situation. I hope (by) half of this year," Mittal had said.