airtel Vs Jio

airtel Vs Jio: What's Next? | Chapter 1 | Mobile Telephony

 

Is Jio a telecom disruptor or a deceiver?

Did Jio deceive India telephony market?

The answer is both no and yes.

Firstly, let us understand what happened in the Indian market before Jio came into existence:

Until mid of 2016, 1GB of mobile data was priced around Rs 300. Separate recharges for talktime and call tariff reduction or boosters had to be made. Limited free SMS recharges were additional. In total, a prepaid mobile customer had to spend or recharge between Rs 500 and Rs 600 so as to use seamless voice calls and mobile internet data. Mukesh Ambani owned Reliance's Jio not only changed the way Indian consumers used their mobile phones but disrupted the world's internet data and voice usage. A disruption.

Unlimited voice calls to both onnet (Jio to Jio) and offnet (Jio to other networks) coupled with irrestible market changer of minimum of 1GB - 2GB mobile internet data for a basic plan recharge of Rs 399. Moreover, the validity of this recharge was for 84 days, almost three months. What did it mean to customers, Jio and incumbents airtel and Vodafone Idea? All a customer had to do was recharge for Rs 399, and the next three months, they enjoyed the liberty of unlimited mobile internet and voice calls. Was it not a liberation of Indian telephony market from the monopolistic incumbents' pricing? Indeed it was, their margins drastically shrunk and they were pressurized to follow suit. In essence, Jio cannibalized the topline (sales) and bottom-line (revenue) of Indian telcos. A telco's financial health is measured by "ARPU" (Average Revenue Per User), which plummeted for incumbents. 

It was widely complained that Jio's business model cannot be financially stable one because a customer is charged or made to recharge only once a quarter. There is almost no replenishment nor upsell (making a customer to buy/consume more of the same products) and cross-sell (making a customer buy products from various related offerings/categories of a company). However, Jio remained bullish on its pricing strategy of charging it's customers once in a quarter with a bouquet of benefits or value added services like complimentary subscriptions to inbuilt apps - Jio TV, Jio Music, Jio Movies etc. 

How is it possible to give everything for free with a reasonable margin and still make positive revenues?

Let's understand a 

microeconomics' concept "economies of scale". Cost leverage a company achieves by increased consumption and production. In simple terms, when more consumers buy more of a company's products or services, the cost required to produce the product or service significantly goes down, therefore, with a minimal margin, a company will be able to achieve positive business results or break even. Does it mean that Jio achieved positive results? Of course, it was bound to achieve positive results or break even. 

So, what happened next?

A Telco has to pay another, when it's customers make outgoing calls to customers of other networks, otherwise can be called off-net. This process is called interconnection between telecom operators, and the charges incurred are called Interconnection Usage Charges (IUC). When Jio disrupted the Indian mobile telephony market by offering the benefit of unlimited voice (both onnet and offnet) and mobile internet, it essentially abolished IUC, even though it was existent. 

Now, comes the question, how can a private telecom operator Jio, abolish the IUC levied by the government regulatory body TRAI (Telecom Regulatory Authority of India)?

Jio not necessarily abolished the IUC, instead it borne the cost of it's customers making calls to other networks, which Jio is liable to pay to other operators. How long can a company bear the cost and not actually charge their customers? The answer is as long as they can make the required profits by selling more to more customers. Recall, our discussion of microeconomics - economies of scale. 

Has Jio been able to achieve it's desired results?

Financial health of a Telco is compared with another by a parameter called "Revenue Market Share" (RMS). As the name suggests, it is the share of an operator revenue from total revenue of the telecom industry. Jio is at 31%, Vodafone Idea 31% and bharti airtel 29% as of September 2019. Don't you think RMS validates the business model of bundling of unlimited voice and mobile internet data of Jio? I would say yes. Jio is or was a success story, until 9th September 2019. 

What happened on 9th September 2019, which changed the perception of Jio - a disruptor?

TRAI mandated operators not to bear the IUC and transfer the cost to customers. Consequently, Jio lifted the free benefit of unlimited voice calls to off-net and started charging it's customers 6 paise per minute for Jio to other network calls or off-net. Does it mean that other networks will follow suit? While the answer is subjective, they are perhaps waiting for TRAI's final decision of termination of IUC in January 2020. Therefore, Jio initially offering unlimited or free voice calls and internet, eventually charging it's customers for calls, is seen as a deceptive business strategy by some, or this move could be solely a regulatory pressure or even an artificial pressure created by incumbents because reportedly, the chairman and managing director of bharti airtel, Sunil Bharti Mittal requested TRAI not to scrap the IUC and continue for another three years as outgoing calls' traffic symmetry is still not achieved among the operators, and Jio's is purely a 4G network operator and significant portion of Indian mobile customers are still on 2G network of other operators. This is why in the very beginning of my study of did Jio deceive the Indian telephony market? I said yes - Jio deceived because, from the perspective of competition and customers who are porting back from Jio to their original operators, and said no because this decision was not solely taken by Jio, and apparently a regulatory move.