Spectrum key to Bharti Airtel-Reliance Jio fight

Analysts see current market leader Bharti Airtel to be the best positioned operator to face the challenge from Jio. The number two and three operators, Vodafone and Idea, are likely to lose more of their market share to Jio.

By Rishi Raj

With the soft launch of Reliance Jio’s 4G mobile services, the incumbent operators are in for a serious competition after more than a decade. The challenge is on two counts. First, it is not any small player but a big one with deep pockets and a pan-India spread. Second, by bringing 4G services, it has thrown a challenge to the incumbents as to how fast they are able to set up their 4G networks and migrate subscribers to it.

Analysts see current market leader Bharti Airtel to be the best positioned operator to face the challenge from Jio. The number two and three operators, Vodafone and Idea, are likely to lose more of their market share to Jio.

“Qualitatively, we assess each incumbent’s risk of losing 3G revenue to Jio in each circle as subscribers migrate to 4G, based on whether the incumbent has sufficient spectrum to defend share. We assume no loss for incumbents with 20MHz, minor loss if they have 10MHz or if no competitor other than Jio has spectrum, and significant loss if they have no 4G spectrum,” Bernstein, a global asset management firm providing investment management and research services worldwide to institutional, high-net-worth and retail investors, has said in its exhaustive analysis.

According to this analysis, Bharti has the lowest risk of revenue loss with 58% of current 3G revenue not expected to experience any loss; only 6% will be open to significant loss. However, both Idea and Vodafone have 35% of high-value subscriber revenue exposed to significant loss; Idea has 10% of revenue with no risk of loss while Vodafone has none.

While Jio has the capability of providing 4G services across 22 circles, Bharti can provide it in 15, Idea in 10 and Vodafone in 8 circles.

According to Bernstein, in China, most existing 3G subscribers had fully migrated to 4G devices within 21 months of the 4G launch. It expects a much smaller cohort of 3G users in India to behave in roughly a similar manner.

Currently, roughly 9% of total mobile subscribers are on 3G and contribute 30% of industry revenue. Bernstein has estimated that the total number of Indian 4G subscribers will reach 29 million by the end of 2016. It says that 4G will account for 3% of subscriber and 11% of industry revenue by the end of 2016, and 13% of subscriber and 34% of revenue by the end of 2017.

The big advantage Jio would have over competitors is its empty network, which would provide much faster network and downloads compared to the networks of the incumbents. For instance, analysts of Credit Suisse, who have tested Jio’s 4G network, claim it is faster than that of Airtel. They claim to have experienced peak download speed of 70 Mbps on most occasions and in the 15-30 Mbps range while on the move. In comparison, Airtel 4G gives 10-20 Mbps. However, as Jio takes on subscribers, this edge may vane.

Another reason for Bharti being best placed to take on the Jio challenge is because in terms of holding across bands and superior mix of spectrum, it is best placed with around 16% of the total allotment and 80% of it is liberalised, which covers maximum the percentage of its revenue for 3G and LTE at 98% and 75%, respectively.

A Citi research report sums it up best while analysing the impact of Jio’s launch on the stronger incumbents. “While there are valid concerns on the launch of Reliance Jio, the impact of new launches on existing operators has been mixed, looking at the global experience. Network quality and coverage, however, is clearly more important than pricing. Large existing operators are also better placed given their existing base versus having to acquire entirely new subscribers and have faster speed of network rollout (need to put up equipment on existing sites vs rolling out a new site). Our sensitivity analysis of the Jio launch on the incumbents’ market shares show that even though the top three players control 70% of the data market and will see some share erosion, the weaker and smaller operators with lower network quality/coverage are likely to be impacted more”.

In fact, Citi has done an interesting analysis to show that new launches don’t generally affect stronger incumbents. For instance, it analysed the revenue market share in the nine new circles of Idea and six of Uninor, where they launched their services around five years back, to see what impact it had on the stronger incumbents in these circles.

Idea’s nine circles contribute 30% of the industry’s revenues while Uninor’s six circles contribute 37%. Both the companies have good execution capabilities. Despite the period of high competition in 2010-2012, the newer launches haven’t been able to grab significant revenue market share. Idea has a 7% market share in the nine circles.

While it has been gaining share, the pace has been quite slow — gained 1% in the last four quarters and 1.8% in the last eight quarters.

Similarly, Uninor currently has a 6.4% market share in its circles. Here too the pace of gain has been quite slow — 0.7% in the last four quarters and 1.6% in the last eight quarters.

Meanwhile, the revenue share of incumbents in these circles shows that they have not only retained their revenue share in those circles but increased it over time. This means that the newer operators have been gaining share at the expense of the weaker operators and not the operators with better network.

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