Reliance Jio to overtake Airtel, Vodafone Idea next year

Incumbents are losing subscribers even as Jio continues to grow

Reliance Jio, the 4G player that started its operations about two years ago, is on track to overtake market leaders Bharti Airtel and Vodafone Idea to become India’s No.1 operator next year — India Ratings said.

The credit rating agency, a unit of Fitch Group, said it expects Jio to overtake the other two some time towards the end of financial year 2019-20.

Based on current trends, said Associate Director Tanu Sharma of India Ratings, Jio will take up leadership position by around December 2019 to March 2020.

“We expect Jio to end up with over 30% [subscriber market share], while the others will be around 30%,” Sharma said, commenting on the agency’s full-year outlook for the next year.

Given that each Jio subscriber already generates about 30% more money per month than Airtel and Vodafone Idea subscribers, this would also translate into Jio getting the No.1 slot in terms of revenue as well.

The Reliance Industries’ unit gets about Rs 130 per connection per month, while the other two are currently around the Rs 100 market.

The biggest loser in all this, said Sharma, would be Vodafone Idea.

“We expect Jio to add about 7 million subscribers per month through FY20,” she said.

Unlike so far, most of these subscribers would be ‘snatched away’ from existing operators, and will not be new additions to the market. Overall, Sharma said, the total industry subscriber will only rise by about 3% in the whole year.

“About 60-65% of these subscribers [added by Jio] would come from Vodafone Idea and about 25% from Bharti Airtel,” she said, adding that it is not inconceivable that the two companies could end up with fewer subscribers at the end of FY20 compared to now.

Vodafone Idea has been losing 1-2 million customers per month in recent months, while Bharti Airtel has been struggling to report growth.

At the end of November, Bharti Airtel had 341 million customers, while Vodafone Idea had 421 and Jio had 272 million. India Ratings projects Jio’s tally to reach around 385 million by the end of FY20.

Part of the reason for the shift has been that the incumbents have been trying to nudge existing customers to spend more. As such, they have done away with ‘Lifetime Incoming Free’ schemes, and now charge around Rs 40 per month to allow any customer to remain on their network.

Speaking at Davos to CNBC TV18, Bharti Airtel Chairman Sunil Mittal said he hoped to take the figure to around Rs 75 sometime in the future.

Sharma said the strategy of forcing customers to spend, instead of remaining dormant on the network, could result a section of these users deciding to junk their Airtel and Vodafone Idea connections.

Many telecom users in India use a connection from an incumbent operator like Airtel or Vodafone as a ‘back up’, while using a low-cost operator like Jio as their main source of data and voice services.

“In the very price sensitive segment, they’re likely to choose one and they are likely to choose more or of Jio in that segment,” Sharma said. She, however, added that she doesn’t expect the ‘dual SIM’ phenomenon to go completely out of fashion because of the new requirement to charge both SIMs.

India Ratings also said that incumbent companies will focus more on protecting their high spending customers and on profitability rather than the overall subscriber figures in the coming year.

It said it has a negative outlook on telecom as a sector for the year, though it expects operating profit to improve at incumbent telecom operators. This, however, will not be meaningful enough to affect their credit profiles.

There will be a recovery in terms of revenue too, but it won’t be enough to compensate for the shrinkage in the top line seen in the last two years, it added.