The recent rapid growth of India’s smartphone market has sparked excitement at technology companies from China to California.
But sentiment among the country’s mobile network operators is being darkened by an increasingly competitive landscape that is sparking vocal allegations of foul play, and speculation about a painful price war.
The tension in the industry was sparked by the arrival in the sector of Reliance Industries, the $41bn-in-turnover oil products group controlled by Mukesh Ambani, India’s richest man.
Mr Ambani ceded control of Reliance’s existing telecoms business to his brother Anil when the conglomerate was divided between them in 2005, but for the past six years he has been plotting a return to the sector. The project, Reliance Jio, has become the most ambitious greenfield investment scheme ever undertaken by an Indian company, with Rs1.3tn ($20bn) invested so far.
The initiative has entailed a rapprochement of sorts between the Ambani brothers: Reliance Jio has struck a deal to use some of the infrastructure of Reliance Communications, which has been relegated to a marginal position in the crowded Indian mobile market.
But it has pitted Mukesh Ambani against other incumbent operators that allege Reliance Jio has benefited from government bias — echoing decades-old allegations about the group’s supposed political connections.
This month the Cellular Operators Association of India — dominated by the leading incumbent operators Bharti Airtel, Vodafone and Idea Cellular — accused telecoms regulators of interventions “crafted and timed to serve the interests of new players”, in a clear reference to Reliance Jio. It highlighted their recent consideration of a rule change that could reduce interconnection payments for calls made between two networks — a change that would benefit Jio, with its initially small subscriber base.
In recent months, Jio has undertaken a prolonged “soft launch” of its service — first offering free unlimited data packages to Reliance employees, then to buyers of its own-branded smartphones, and last week to owners of phones made by Micromax, India’s biggest phonemaker.
The COAI has taken issue with this scheme, arguing that Jio has circumvented industry norms by disguising its service rollout as a test.
For its part, Jio alleges that the incumbents have breached licence requirements by refusing to provide sufficient support for incoming calls from Jio users, and last week threatened legal action.
The fierce pushback from the incumbent operators reflects the bombast with which Reliance has approached its new operation: it has promised geographic coverage and mobile broadband speeds far greater than its rivals’, and will thereby “digitally empower 1bn Indians and propel growth for India”, according to Mr Ambani.
Jio has installed some 92,000 telecoms towers across India, connected by cables that contain about three times as many optical fibres as most others installed to date, enabling higher data volumes.
“Definitely the fibre that has been deployed is very, very high quality,” says Ankit Agarwal, telecom products head at Sterlite Technologies, which has installed fibre networks for both Jio and its rivals. Mr Agarwal concedes that Jio’s is still virtually an “empty network”, and that the true test of its performance will come only when it amasses a large number of users.
Yet Jio is rolling out its services amid incipient jitters over the growth prospects for mobile broadband usage in India. After surging expansion that set India apart from other major markets last year, year-on-year growth in smartphone sales slowed in the second quarter of this year to 4 per cent, according to research group IDC.
This is compounded by the fact that growth in mobile data subscriptions is now lagging well behind smartphone sales, indicating that many lower- and middle-class Indians are willing to rely only on public WiFi hotspots in order to save money.
Jio’s response has profound implications for the economics of the industry. It may, JPMorgan analysts note, seek to mould customer behaviour to match its huge capacity for data transmission: boosting demand for data-heavy streaming services through sharp tariff cuts, thereby forcing rivals to cut tariffs and spend heavily to remain competitive.
Jio has hinted at data tariffs far undercutting current rates, which may have prompted last month’s launch by Bharti Airtel and Idea of new, much more generous mobile data packages. A price war now beckons, similar to that already seen in prices for voice calls, says Amresh Nandan, an analyst at Gartner. Bharti Airtel’s per-minute rate for voice calls has roughly halved since 2008, according to JPMorgan.
And as pressure mounts, analysts expect consolidation in a market split among 13 mobile operators. Last week an Indian television network owned by Reliance Industries reported that Vodafone and Idea Cellular were in talks over a merger that would create the country’s biggest mobile operator.
That prospect was dismissed by Idea’s parent group Aditya Birla, which insisted its subsidiary had bright prospects as an independent business. But such a tie-up could be transformative for the UK group’s Indian unit ahead of a long-mooted public listing, says Chris Lane, an analyst at Bernstein, warning that Vodafone India’s profits would come under pressure if it slips to third position in the market behind Airtel and Jio.
“Operators are scrambling to respond [to the arrival of Jio],” Mr Nandan says. “The Indian telecoms market has been extremely competitive, and that will only become more extreme.”
Get alerts on Indian business & finance when a new story is published