The financial health of the Telecommunication Sector has been in an oblivion since JIO entered the market. The onrush by Reliance JIO has shaken the industry, driving many players to merge or file for bankruptcy. In this story, we will be considering the period post-Reliance Jio’s entry. We will also be analyzing its impact on the other players.
The Disruptive Entry
Reliance Jio started full-scale operations on trial basis on December 28, 2015. The test program, that was launched for a group of employees, vendors, partners, and associates, had established smooth operations in all aspects.
By September 2016, Reliance Jio Infocomm Ltd. was ready to launch commercial operations. It started operations on Monday, September 5, 2016. The firm began services in all twenty-two telecom service areas.
The firm turned profitable within 15 months from starting operations. Recently, for the third quarter of this fiscal year, Reliance Jio has entered a Net profit of Rs 504 crores. This is opposed to the loss of Rs 271 crores in the before quarter. Further, Jio has booked a revenue of Rs 6.879 crore, up nearly 12% on quarter. Surprisingly, Idea took 17 years for almost same quarter profits as Jio today booked in 16 months. This shows clearly how disruptive and competitive the Jio is for the sector and the players.
In terms of Revenue market share, Jio stands as the third largest telecom company in India.
The strategy encompasses creating a complete digital ecosystem in the telecom industry. The company hired fifty customer acquisition and relationship managers with an aim to have hundred million users in hundred days.
Reliance went forward with a strategy to provide telecom services at one-tenth of the standard prices. Further, there with numerous benefits included for the first time buying the sim card including free unlimited voice services, no roaming charges, the JIO apps that provided a variety of services etc.
Reliance also meticulously played with the time for which it offered services by setting all plans with a validity of twenty-eight days and NOT one month. It also came up with a naughty network with frequent call drops and weak signal quality, but still managed to bag millions of customers.
According to Fast Company Magazine, today Jio ranks as one of the Most Innovative Company in the world.
Impact on other Firms
All the other major telecom operators have seen a steady decline in their performance due to JIO’s onslaught. In fact, its entry has sparked a major consolidation bringing down the number of active players to 4(Airtel, BSNL, Idea-Vodafone, and Jio).
Let us try to see its impact on different individual players who were prominent in the sector before Jio’s entry and their current situation.
With 85 million subscribers and is sixth largest player, Aircel was forced to release new plans with unlimited calls. And it has been in constant touch with JIO and Bharti-Airtel for intra-circle roaming pacts. But owing to the huge debt of Rs 15,500 crore, Aircel recently filed for bankruptcy protection in National Companies Law Tribunal (NCLT). Though the company considered a merger with Reliance Communications (RCom)last year, eventually it was failed.
Idea and Vodafone
The price war initiated by Jio left Reliance Communications, which is owned by Anil Ambani unviable to survive in its 2G mobile operations. The Mukesh Ambani-led Jio forced Reliance Communications out of viability. Jio played the pricing game tremendously well and drove R Com to shut its 2G operations and ask the customers either to switch to 3G/ 4G or port.
As the part of non-compete clause between Ambani brothers, Mukesh Ambani had to wait till 2016 to re-enter in the telecom business with Jio.
With 42,000 crores in debt, RCom wanted a merger with Aircel last year, like already said, it was later called off for reasons like inordinate delays caused by legal and regulatory uncertainties and others. But recently the company’s shareholders approved the firm’s sale of its wireless assets including towers, fibre and spectrum to Jio to trim off its debt by roughly Rs 25,000 crore.
The government-owned Bharat Sanchar Nigam Limited(BSNL) could retain 100 million customers providing offers that are competing with Jio and other players. BSNL is working closely with Japan’s leading Telecom player, NTT Adavance Technology Corporation for 5G in India by March 2018.
Before Jio entered the industry, Bharti Airtel remained the biggest player in the Telecom Industry in India. The Jio-effect caused Airtel took a beating in terms of its profits. First on account of customers moved to Jio and next to the reduction in Interconnect usage charges(IUC) by Telecom regulator TRAI.
With effect from 1 October 2017, Telecom Regulatory Authority of India (TRAI) reduced Interconnect User Charges (IUC) from 14 paise to 6 paise per minute. One of the main sources of income for telecom firms is Interconnect User Charges. This is a charge payable by a service provider, whose subscriber originates the call, to the service provider in whose network the call terminates.
As Jio offered free calls, the number of calls originated by it is more than the calls terminated. So it preferred for low IUC charges while incumbent firms such as Airtel, Idea, and Vodafone supported a hike in IUC. But the reduced IUC charges helped Jio in a big way to turn into profits.
The onslaught continues as JIO looks forward to extending its market share. Will Jio continue the perilous streak? Or will it succumb in some years… only time will tell. Let us follow this sector deftly and understand the unfolding of a new era in Indian telecommunications.