Economy

The Entry of Reliance Jio and the Resultant Tremors on the Indian Telecom Market

On September 5th, 2016, Reliance Industries, led by Mukesh Ambani, commenced the services of its wireless telecommunication services, Reliance Jio Infocomm Limited or Jio in all service areas of India. Reliance Jio Infocomm provides wireless 4G LTE service and was the first ‘VoLTE-only’ (Voice over LTE) operator in the country which lacks network support of 2G and 3G, with coverage across all 22 telecom circles in India. Under the Welcome Offer and Happy New Year offer, subscribers were entitled to unlimited LTE data and national voice, video and messaging services, including national roaming, completely free up to 31 December 2016, which was later extended to 31 March 2017. This offer attracted many customers, and Jio crossed 50 million subscribers within 90 days of its launch. Till today, Reliance Jio continues to attract customers by making their services available at a very nominal price and introducing attractive packages. In a little over three years of operation, Jio has acquired over 350 million users. The success of Jio under RIL has led to the possibility of an initial public offering (IPO) for Reliance Jio Infocomm, making it a separate company on its own. Jio has also ventured into fixed-line broadband services.
The entry of Jio has had varying impacts on various economic units.

Effect on competition

Reliance Jio caused the total revenue shares of its competitors to drop by 7% within the first two-quarters of its commencement. Faced with stiff competition, Sunil Mittal-led telecom giant, Bharti Airtel, suffered a 72% decrease in its net income during the quarter ending in March 2017 and recorded a 4.9% decline in its profits. Adversely affected by Jio, Vodafone India, the second-largest telecom operator, witnessed a near 8.3% drop in its service revenue in the first quarter of 2017. The third-largest telecom operator, Idea Cellular, saw its data revenue decline by more than 19% and a decline of over 6.4 million in the fourth quarter. The Telecom Regulatory Authority of India’s (TRAI) telecom subscription data for the month of October 2019 suggests that Reliance Jio was the topmost gainer in terms of new subscriptions, highlighting the continued success of the venture.

Changes in market structure and strategies

In order to combat the competition triggered by Reliance Jio Infocomm Limited, British telecom major Vodafone and Aditya Birla group-run Idea Cellular announced the merger of their operations on August 31st 2018, creating the largest mobile operator by customer and revenue market share, and this merger has managed to hold the top spot as of October 2019.

The Vodafone-Idea merger and the other such consolidations in the telecom sector will lead to pooling of vital resources and infrastructure, which will inevitably lead to better service quality and customer experience for consumers. The telecom industry is now composed of three sets of players; Established operators like Airtel, Vodafone and Idea Cellular which have done well in the past and have strong brands; weaker players like Telenor, MTS, RCOM, BSNL, MTNL and Aircel which are either exiting or consolidating for survival, and Reliance Jio, which has redefined the technological and strategic landscape of the telecom sector.

Socio-economic impact

Considering another angle of the impact of Jio, we may look at a relevant programme- Digital India. Digital India, a campaign launched by the Government of India on July 2nd 2015, aims at making government facilities available to citizens electronically, especially in rural areas, by making the country digitally empowered in the field of technology. While RIL has constantly promoted Jio as a key driver of Digital India, the impact has been very different. Within the first few months of the launch of Jio, Urban Teledensity increased from 152% to 170%, whereas Rural density increased by only 2%, from 51% to 53%. Thus, the spread of this improved technology initially seemed to be restricted to urban areas and has thus further increased the urban-rural divide.

Not only this, but the entry of Jio has depleted the Universal Service Obligation Fund (USOF). USOF is a government fund which consists of 5% of the fee that telecom operators pay to the government. Providing telecom services in rural and remote areas is not economically viable for private operators, hence this fund is used to provide connectivity in these areas. After the entry of Jio, this fund has been depleted by about Rs 1600 crores, which has seriously hindered the government’s ambitious project of providing connectivity in rural and remote areas.

When it comes to Digital India, the high usage of data services by its customers is a plus point for Reliance Jio. According to a recent report by Ericsson, India now leads worldwide in data usage per smartphone at 9.8 GB per month and the usage is set to double by 2024. By offering free 4G services and aggressive marketing, Jio offered more choices to consumers among the existing options. There is no doubt that Reliance Jio’s entry reduced tariff for 4G services as because of its offering services for free, competitors were also forced to reduce tariff and offer more attractive packages. The incumbent operators like Airtel, Vodafone and Idea were also made to improve their quality of services, which was ultimately better for the users. The demand for Voice over LTE (VoLTE) phones in the country has also surged. 80% of LTE compatible smartphones shipped during the July-September quarter (Q3) were VoLTE enabled and 90% of all LTE (4G) enabled phones shipped into India in the first half of 2017 use VoLTE technology. This effectively means that going forward, VoLTE will become the default basic smartphone technology in the country, helping India modernize and become more technologically advanced.

In conclusion, the entry of Reliance Jio has had many consequences on various sections, both positive and negative. Consumers have reaped huge benefits in terms of lower prices and more options. The price of mobile data is now the cheapest in India, a huge advantage and a sign of modernisation and progress. However, Jio has negatively impacted all the other firms in the industry. It has affected their market share, subscriber base, profit margins and even their survivability. Stiff competition has also caused price wars, unpredictability, and confusion. The impact also has the potential to further increase differences between urban and rural areas. All in all, in the long run, it is important to see how the future decisions of Reliance Jio Infocomm Limited will affect the economy.



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