The State of Play in the Telecom Market

Reliance Jio rises to the top in India; Dish Network in uphill battle in US

The past few weeks have seen telecom operators make the headlines with major announcements, leading us to reflect on two challenger brands in particular.

Indian wireless operator Reliance Jio announced a couple of weeks ago that it had become India’s largest telecom operator. With a total of 331.3 million subscribers, it has overtaken Vodafone Idea, which reported a fall in users to 320 million at the end of June 2019. Vodafone Idea had earned the title of the largest telecom operator in the country, with over 400 million subscribers after Vodafone India and Idea Cellular completed their merger in 2017 (see Vodafone Aims for Pole Position in India).

Reliance Jio grew at a rapid pace, fuelled by an investment of $36 billion from its parent company Reliance Industries. Data tariffs dropped to almost zero, increasing Internet connectivity throughout the country. There were immediate social benefits, but also consternation in the industry: data tariffs in India are some of the lowest in the world, at $0.6 per GB. For reference, the average cost per GB in the US is $12.37.

Reliance Jio’s rise to the number-one spot is an impressive feat considering the operator is essentially a start-up. Its arrival in 2016 with an LTE-only service altered the chemistry of India’s telecom market, quickly sparking an intense price-war among local wireless operators. A handful of players, including Aircel and Anil Ambani’s Reliance Communications, shut up shop, and Vodafone India and Idea underwent a merger to stay competitive. Airtel too had to invest in its 4G infrastructure, migrating from 3G services.

The fact that Reliance Jio is a young carrier, albeit a well-funded one, must be a motivating factor for other companies looking to enter the well-entrenched market for mobile services.

This leads us to think of the ongoing realignment in the US, where the potential merger between T-Mobile and Sprint, which has recently been given the green light by the US Department of Justice, is resulting in a new market entrant, namely Dish Network (see T-Mobile US and Sprint Win Antitrust Approval). A provider of satellite-based TV services, Dish Network has long had a vision of providing cellular services of some kind. However, it’s arriving late to a crowded market where it will be playing catch-up. So, what does the future hold for the company?

Dish Network has a cache of mid-band spectrum and is expected to acquire 800 MHz that the combined T-Mobile and Sprint entity is required to divest under the terms of the potential merger. It will also have wholesale access to T-Mobile’s wireless network for seven years, similar to the way that Comcast and Spectrum rely on Verizon’s network to deliver cellular services to their subscribers. This means Dish Network can hit the ground running as it builds out its wireless infrastructure, which is likely to be for 5G services only.

As part of the deal between T-Mobile and Sprint, Dish Network will buy Sprint’s prepaid businesses including Boost and Virgin Mobile. It will gain about 9 million subscribers, but these accounts tend to generate lower average revenue per user and high churn rates.

Dish Network will be taking on big names, specifically AT&T, a combined T-Mobile and Sprint as well as Verizon. Mobile virtual network operators such as Tracfone, Comcast and Spectrum pile on pressure in a market that’s nearly completely saturated. In other words, the US wireless market is essentially a zero-sum game where traditional possibilities for growth are gone. To gain profitable post-paid smartphone subscribers, Dish Network will need to pull in post-paid accounts from competitors. But with post-paid churn rates at record lows, the carrier has a huge challenge ahead if it wishes to move beyond the prepaid segment, which only accounts for 25% of phone subscribers in the US.

Despite having a shrewd businessman, Charlie Ergen, as chairman, Dish Network will be dwarfed by established players with dozens of years of experience in the industry and, importantly for the US market, a vast retail operation. Nonetheless, we know markets can be disrupted and consumer behaviour can shift with a new generation of users. The company can take inspiration from Reliance Jio and Apple, which altered the handset business in only several years.

T-Mobile has been the challenger brand in the US market. Now, as it approaches the same size of AT&T and Verizon, we wonder if Dish Network could be the new T-Mobile. It’s an uphill battle, but competitors would be foolish to dismiss it.