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Conquering The Indian Market Is Not Going To Be Such A Cakewalk For Jio [ed]

19/09/2016 8:11 PM IST | Updated 23/09/2016 9:43 AM IST
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Reliance Jio has finally made its launch this month after years of speculations and delays, although it is still declaring itself as under the test phase and its operations as non-commercial.

It probably didn't take the Ambanis long to realize that they had over-promised, and therefore we see a deliberate delay in issuing new sim-cards...

The media hype has been predictable. Many have termed its tariff plans, announced on 1 September in the 42nd Annual General Meeting (AGM) of Reliance Industries Ltd, to be revolutionary and disruptive as it gives traditional voice calls for free (one needs to have a minimum balance or subscribe to its services, which, on a monthly basis, works out to about ₹149/month). Nearly 700 million Indian mobile phone subscribers presently have nothing to do with telecom service providers' data plans as they use only the voice service. Therefore, it is not surprising that more than 70% of the revenue of all commercial telecom companies in India comes from voice services. On paper, therefore, Jio's tariff plans do seem disruptive. However, whenever we discuss disruptive technologies, we always tend to overestimate their impact in the short term, and underestimate it in the long run. In terms of technology disruption, Jio offers little new, as most of the other leading incumbents have been rolling out 4G LTE for better network speed. What differs is the scale of it and the fall-back arrangement. Reliance Jio claims to cover all of India under its 4G coverage, while others cover only pockets, so far at least.

So, telecom incumbents are evolving -- from basic mobile telephony to 2G to 3G to 4G -- whereas Jio appears evolved and comes future-ready, announcing that it is 5G or even 6G ready.

Honestly, no one in India was even thinking about 6G until Mukesh Ambani mentioned the term in the AGM. Sure, 6G need not be sci-fi and may appear sooner than expected, but most managers cross the bridge when they come to it.

Reliance Jio is an altogether different animal. Much like its "brand ambassador" Prime Minister Modi, Reliance Jio's chairman Mukesh Ambani is not answerable to anyone. At one time, the RIL AGM started seeming like a family affair and not a meeting of India's second-largest listed company. The company, assumed to be professionally managed, has failed to reward its shareholders for the last six years.

If Jio expected users would thank it for its free services, it is witnessing quite the opposite reaction on Twitter and other social media platforms.

That leaves one to gauge how professionalism has evolved in many Indian business houses, which grew primarily from the art of managing the government. Such groups imagine that running a business is an easy task, which is why they are left floundering when the ante is upped. It is not surprising that the Jio roll-out has not been particularly smooth. A national-level launch, across 22 circles, is a complex and difficult undertaking. Then there is the question of freebies. The market price of the freebies announced, on paper -- assuming ₹50/GB of data and minimum 4GB of free data a day (excluding access to other Jio apps and voice calls, etc.) -- is ₹24,000 at the minimum, taking September-December as the free period.

It probably did not take the Ambanis long to realize that they had over-promised, and therefore we see a deliberate delay in issuing new sim cards and activating old ones issued; the network also turns out to be unstable in between. Its own mobile data capacity, at around 20 million GBs per day, can actually deliver 4GB of data to 5 million users at 100% capacity utilization. Naturally, users are frustrated. Old economic warhorse Reliance Industries may be famous in running its plants at 100% or more capacity utilization, but that is difficult in service industries with servers – according to "queuing theory", waiting times tend to go up exponentially much before the namesake 100% utilization levels.

Jio's free launch, therefore, provides a new insight to consumer behaviour and mindset. If Jio expected users would thank it for its free services, it is witnessing quite the opposite reaction on Twitter and other social media platforms. Such trends can change quickly, but hope and strategy are not interchangeable. There are no two ways about it -- Jio needs to deliver.

In all likelihood, Jio will probably bleed more money as it attempts to make the industry bleed.

In spite of the "loss leader" strategy that Jio's actions resembled to many, the sales of Lyf and the reactions of its MiFi device owners have not been encouraging; users have not been happy due to the shift from Jio Preview Offer to Jio Welcome Offer. In all likelihood, Jio will probably bleed more money as it attempts to make the industry bleed. The indications are visible in the EMD Jio has now deposited for the forthcoming spectrum auction (almost same as the three leading incumbents put together), highlighting that it realizes now that it is too big to fail. There is speculation that it may even bid for the 700 MHz band pan-India, or in select circles, which would mean that from 2300 MHz to 700 MHz – it would have all, making the device ecosystem more complex without carrier aggregation.

Some time back, the market was fascinated by the amount of land-banks real estate developers had. Then that perception changed. Presently, if one sees the telecom revenue to spectrum holding ratio, Vodafone India seems to be performing the best, until and unless one views how Videocon traded its 1800 MHz spectrum at double its costs within a couple of years to Airtel. Telecom service providers should not make money by holding or trading spectrum; they should make money by providing customers services. Unfortunately, lack of stable policies and cronyism in regulation (TRAI) to the department of telecom (DoT) have resulted in spectrum being hoarded by many for years, thereby making less of it available to active service providers. This makes their services costly as well as poor in quality.

Reliance Jio can afford to be a loss leader, even if it means destroying the money and confidence of shareholders (of RIL).

Reliance Jio, so far, has been the best example of that. The government has not got a single rupee in spectrum usage charge from Jio although it's been holding the second-highest spectrum after Airtel (excluding the RCom-Aircel merged entity). Rollout obligations, as per TRAI, unfortunately, mean certain infrastructure in place and not customer coverage.

The past is behind us now. The future is the marketplace and one can only hope that the government will not show its nepotism to its (apparent) favourite child again by bending fair and transparent policies, under the pretext of lowering costs or promoting better services even as it ignores those 700 million underprivileged mobiles users who top-up with ₹20-50 plans that run for months, mostly for incoming calls.

Reliance Jio can afford to be a loss leader, even if it means destroying the money and confidence of shareholders (of RIL). Those 700 million Indian users, to whom connectivity still means voice and other services and not yet data, cannot afford a minimum monthly bill of ₹149. These 700 million Indians deserve a better future, sure, but they deserve a better today as well.

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