Reliance Industries Ltd's telecom arm has announced free lifetime voice calls and roaming services for its users along with data charges at about one-tenth of the prevailing rates.
The company is targeting 100 million subscribers in shortest possible time, RIL Chairman Mukesh Ambani said yesterday while unveiling the 4G service.
While market watchers described the move as a "knockout punch", they also feel that incumbents (like Bharti Airtel, Vodafone and Idea Cellular) are likely to formulate a new pricing and marketing strategy over the next few days to protect market share.
"We believe R-Jio would need 75-80 million subscribers with an average revenue per user (ARPU) of Rs 180 for EBITDA break-even over the next 2-3 years - execution and customer care is the key," IDFC Securities said in a note.
It added that growth for RJio would primarily be driven by market share shift from fringe players and modest gain from incumbents, who have a relatively weak data footprint.
Goldman Sachs expects RJio to hit EBIDTA break-even by FY 2019-20 with 75 million subscribers.
The current monthly data usage in India is between 600- 900MB, say industry watchers. Given RJio's aggressive pricing structure, its strategy is to drive up ARPUs through higher usage.
Another brokerage, Motilal Oswal said a subscriber base of 75 million with an ARPU of Rs 244 would help RJio generate revenues of about Rs 18,400 crore, but remain loss-making at EBITDA level (Rs 1,580 crore).
"Assuming 400 minutes of usage (MOUs in line with Bharti) and 80 per cent off-net calls for the 100 million subscriber target indicated by RJio, annual interconnect cost to be borne by RJio works out to be Rs 5,300 crore...We expect RJio to break even in the third year at EBITDA level," it added.
Analysts also expect to see 20-25 per cent drop in voice and data realisation for incumbents over the next four quarters.
They said the incumbent players will eventually move to bundled plans with unlimited voice, which could hurt revenue growth rates.
Interestingly, Edelweiss Securities said it does not expect incumbents to match RJio's unlimited voice offering, but instead exploit large gaps in price points to target specific users.
"With only 2 packages priced under Rs 500, which are likely to accommodate maximum number of users, we expect incumbents to offer multiple packages in this band to target different set of users to minimise churn," it added.
It added however that users would perceive more value in RJio due to the unlimited offerings and free usage till December 2016, leading to strong demand for its services.