Here’s how Jio is pushing India’s telecom industry in a crisis
Reliance’s Jio has now become a household name and it’s the country’s largest telecom operator by number of active subscribers. Debuting in 2016, the company has managed to grab hundreds of millions of customers within just three years.
It can also be said Jio pioneered 4G in India because of its huge country-wide network reach and rollout of next-generation VoLTE technology. In the end, the brand was able to overcome conventional hurdles of calling and offer truly unlimited calls. It’s also among the few in the world to offer unlimited 4G bandwidth, for a dirt-cheap price.
The government has been extremely satisfied with the company’s roll-out because it helped them show that India’s citizens are actively getting online (in other words progressing) and indirectly complimenting its Digital India program. E-commerce and online-only companies have been the first ones to reap the benefits of this and content consumption has increased exponentially.
However, Jio disrupted the industry in a negative way. Today, the telecom industry as a whole, owes banks and the government tens of billions of dollars, network and data transfer speeds are among the lowest in the world, and almost every other regional operator has gone out of business.
How did Jio truly “disrupt” India’s telecom?
- Before Jio rolled out, 1GB of 3G data would generally cost Rs 250. As a launch offer, Jio offered unlimited 4G data for free, over a period of three quarters. Naturally, consumers quickly got themselves a Jio SIM, even if it was used as secondary. Over this period, everyone got used to higher data consumption and there was no going back. Even when Jio started charging, it was offering data at 1/10th of the competitor’s price. Experts call this “predatory pricing”, and everyone expected this to end in some time. Alas, it’s 2019 and Jio is still offering a humongous amount of data for dirt cheap rates.
- With low prices, consumers weren’t too concerned about spotty transfer speeds. It’s a psychological hack. You won’t complain when you know the offering is unmatchable and barely costing you anything. Hence, Jio got a get-out-jail card as far as quality is concerned, while other telcos were expected to continue their quality-based offering, but also match Jio’s price. Unsurprisingly, slowly, everyone ported to Jio in hordes and competing players were scrambling to prevent this exodus. India’s average 4G speed is 6.1 Mbps, the lowest in the world. It’s even slower than that of neighbours Sri Lanka (13.95 Mbps), Pakistan (13.56 Mbps) and Myanmar (15.56 Mbps), according to OpenSignal. They are much lower than developed markets such as the US (16.31 Mbps), UK (23.11Mbps) and Japan (25.39 Mbps).
- The current average rate for 1GB of 4G data is $0.26 in India, while it costs $12.37 in the US, $6.66 in the UK, and a global average of $8.53. Obviously, telecom equipment globally is sourced from global players like Ericsson, Huawei, and Nokia. Meaning, operational costs are pretty much the same, but revenues from India are considerably lower.
- This meant Jio was operating at a loss. To match its predatory pricing, other players like Airtel, Vodafone, and Idea were forced to lower down rates and run in huge losses. To give you a better understanding, Vodafone posted a loss of Rs 4,874 crores in Q1 of this year against revenue of just Rs 11,270 crore. Today, Airtel has a debt of Rs 1.16 lakh crore, Vodafone-Idea (after merging) has a debt of Rs 1.2 lakh crore. Most of this is owed to the government thanks to spectrum charges.
- Yes, even Jio is bleeding money, but it is backed by India’s richest company called Reliance Industries to back it. The parent company is spread across multiple industries like petrochemical, textile, retail, media, and more. It can go on to take losses for years and years without a hiccup. And, that’s exactly what it plans on doing. Vodafone-Idea is already selling off their assets like towers and promoter companies aren’t interested in pumping any more money. Airtel has been issuing new bonds and shares to raise capital, but how long will this last?
- A long-term war is Jio’s gameplan. It wants other companies to bleed out, slowly. This way it can command the market and steadily move towards total monopoly. The operator already has more than 30% of the market by revenue share and experts suggest it’ll grab almost 45% by 2022. Remember the days of BSNL and MTNL, when you’d be at the mercy of a single operator to provide you with a landline phone? This may be exaggerated for Jio, but a core industry like telecom shouldn’t have a single-player that’s as powerful as Jio.
- What’s even more worrying is, the government has turned a blind eye to Jio’s predatory pricing as well as reckless moves. Last year, the government announced its first draft of the e-commerce policy and it heavily struck down current players like Amazon and Flipkart. FDI rules for retail prevented them from selling directly and exclusive-brand partnerships with foreign brands were discouraged. A few days later, Jio announces its plan to roll out an e-commerce platform, and the company is immune to all those restrictions because it’s “Indian”. Mysteriously, there’s no other player in the market who’ll benefit from these policies, but Reliance, which is the parent company behind Jio. This month, the government asked players like Amazon and Flipkart to stop offering “predatory” discounts but didn’t say a word against Jio’s predatory pricing all these years.
- The government has also practically left the responsibility of improving rural penetration to private players like Jio. Then, why are we bailing out debt-ridden PSUs like BSNL and MTNL? Isn’t the onus to improve the country’s telecom infrastructure and standing ideally supposed to be on them? Interestingly, BSNL is expected to launch 4G services in March 2020, a full five years behind industry standards. In the end, the taxpayer will end up filling everyone’s debt — private as well as public sector units.
Mukesh Ambani is India’s most powerful business tycoon right now and can accelerate the country’s economy exponentially. In a capitalist structure, these folks are supposed to project power while the government lays down a platform for them. Unfortunately, crony capitalism is a by-product of this ideology and again; it’s the government’s responsibility to ensure they don’t get out of hand. Unfortunately, the courts are silent, the policymakers are silent, and so are the people.
Kingsman, in real life. Though, not everyone will be affected. 2% of taxpayers will again absorb the blow. Like they always have.
Originally published at https://warpcore.live on October 28, 2019.
Words by Shivam Vahia