‘Jio’, Ya Jeene Do?

It takes one man just a few minutes to go up to the podium and make his competitors lose an amount as massive as Rs. 12,500 crore! Now how often does that happen?

Fortunately or unfortunately, we did get to experience this some time back when Reliance decided to give a 4 month introductory offer of free voice and data use on the commercial launch of its absolutely disruptive 4G service- Jio. The company announced that it would offer unlimited free local and roaming voice services; access to Jio entertainment apps; free SMS; and data services.

In an attempt to understand what could possibly be in store for us in the near future, let’s have a look at what this breakthrough development could potentially mean for Reliance, for its competition, for the industry and for the society as a whole.

Talking about the impact on Reliance Industries; it had to be huge, undoubtedly. It ended up acquiring a subscriber base of 16 million in the very first month of its launch and the number has been increasing ever since. A recent survey by Bank of America Merill Lynch indicated that the offer caught the attention of Indian customers nation-wide and they are eager to get access to high-speed and unlimited data for free. Well, why would any rational customer not be! More than half of those surveyed said that they were willing to use Reliance Jio as their secondary connection while a quarter said they could even use Jio as their primary SIM provided the quality is good.

However, Reliance needs to be cautious about its network stability and flawless service delivery on a sustainable basis; as these will be the defining factors in retention of the enhanced subscriber base. They will soon be tested on how firm they can stand by their name. Also, the real test will be once Jio starts charging for its services from later this year. Even though it is backed by deep pockets, Jio will need to keep its average revenue per user and subscriber base high in order to ensure recovery of its capital expenditure. The company has an expectation of breaking even and turning profitable in 12 months of operation, based on an expectation to achieve an ARPU of approx. Rs. 300 per month from a subscriber base of 100 million. However, these expectations seem to be a little too optimistic, considering the time frame the management has in mind, and RIL may have a hard time trying to live up to these expectations.

Mr. Ambani can just not afford to underestimate the need for ensuring an unparalleled customer experience, as can be evidenced from some of the challenges that have already started surfacing for the company. These include a large number of network connectivity issues, unacceptable levels of call drop complaints, SIM cards being sold in black due to lack of availability and discontentment regarding smartphone incompatibility. The company also needs to come up with a strong fallback option as it is not backed by a 2G or 3G network and thus compatibility with non VoLTE and non-4G phones might become a huge cause of concern. Although the company has already started addressing some of these issues- like collaborating with ShopClues to increase the availability of 4G-enabled Jio eligible smartphones- it still has a long way to go in ensuring successful execution.

Now, let’s flip the coin to understand another interesting aspect of the story- the impact on competitive firms and the industry as a whole. Undoubtedly, this could be the game changer in the telecom industry. Reliance has shown what the power of competition can possibly be. Competitors have had to slash their rates too, as a response, and data revenues have already begun declining- it’s like a war that has just begun; which will only accelerate over time. However, this kind of an aggressive price war will impact the industry profitability/returns as a whole. With the industry already facing financial stress, high debt burden and slowdown in revenue growth, further decline in data tariffs will create pricing pressures and impact operators’ profitability and sustainability. In addition, the contraction of ARPU and declining profitability will have a spill over effect for the players in the industry in terms of reduction in the appetite to fund further expansion/growth projects after having spent such huge amounts on meeting price wars.

The 3 major rivals did try their best to deny adequate number of interconnection points for Reliance, thus leading to an increase in the number of call drops and a consequent decline in the quality of service that Jio can offer to its subscribers. Their stance that they “are in no way obliged or in any position to entertain Jio’s requests for the latter’s humongous volumes of potentially asymmetric voice traffic” is a clear indication of their deliberate attempt to hinder the success of Jio. Another side of the story was revealed through a statement from the leadership of one of the competitive players that said that Jio is creating a controversy over PoIs to mask inadequacies in its own service- now to believe or not to believe, is for you to decide! The efforts to add hurdles to Jio’s path to glory, do not end at PoIs. There have been accusations of rejection of demand for mobile number portability of subscribers who wish to switch to Jio, on unsubstantiated reasons- another clear indication of the level of threat they feel Jio to be. Does this mean that with Jio’s entry, healthy competition is lost and a ‘cartel’ is formed? Well possibly. It would indeed be interesting to watch who will eventually come out victorious from this war of 3 vs 1!

Reliance needs to be absolutely clear about its long term strategy now. Firstly, in addition to data revenue, they could probably start looking out for other potential sources of revenue like advertising; offering OTT content (like Games/ Music/ Live TV etc); and so on. Also, they need to keep a continuous check on their subscriber base. When customers try to Port from competitor networks to Jio, customized offers are given to retain the high value subscribers among them. This could possibly mean that Reliance ends up acquiring only low value customers, who might not add a lot of value in the long term; another potential cause of concern for Reliance.

However, just like every cloud has a silver lining, I am sure this one has it too. The need for survival will force the players to innovate and develop new business models for the Indian data market; to come up with new services and new ways of making this business profitable. It will get the industry thinking, for sure!

Finally, for a price sensitive market like India, the launch of such an affordable data and voice service would drive greater data adoption across the country. The excitement built around the access to high speed and affordable data services will not only ensure expansion of data reach, but will revolutionize the way we live and work. Aadhar based-paper-less Jio SIM activation process has already enabled a reach of 3100 cities and towns across the country and this graph will only slope upwards with time. The very fact that it was launched on the occasion of teachers’ day can be indicative of the contribution this development can have towards promoting education and digital literacy in the country. Availability of faster and cheaper data services can prove to be a major boost to economic activity in the country, across all sectors, scales and geographies. From start ups and SMEs to multinationals; from farms to mines; from schools to research centers- you name it and the organisation can be listed as a potential beneficiary of this revolution!

Well, no matter what, we will have to accept that Jio has been a one of its kind revolution for the telecom industry and it will definitely be very interesting to see its path unfold in the months to come. Will the 3 rivals be successful in defeating it? Or will it be able to use the power of Shah Rukh Khan’s brand endorsement to emerge as the industry leader? Will it be able to retain its customers once the company starts charging for its services? Or will the price war drive the entire industry’s profitability down the drain? It would indeed be interesting to wait and watch.