How Jio is capturing India’s telecom industry

By Tanya Agarwal

Business tycoon Mukesh Ambani made a foray into the highly-competitive telecom business in September 2016. His company’s subsidiary telecom wing, Jio, rolled out a six-month promotional offer of free voice and data, which helped it to attract millions of users. Ambani described the move as part of a bigger plan to transform the industry. “This has made India a global digital powerhouse.   …Our commitment is to keep pushing newer innovative products. This would radically transform customer lives and generate huge societal value.”

Reliance Jio: An Indian success story

Reliance Jio began its promotional scheme by beta-testing 4G services with its one lakh-plus employees in December 2015. The release of Reliance Digital’s latest LYF brand of phones followed the beta test, and these were also offered to the families of Reliance employees.

Reliance Jio’s real journey began on the 1st of September 2016 when chairman Mukesh Ambani announced the commercial rollout of these telecom services at the company’s AGM. The company chose an unconventional path to tempt customers, by offering freebies. Soon after, the idea of an operator offering free voice calls, messages, and mobile data became a trigger for mass hysteria.

The initial industry response

What was equally unsurprising was how existing network operators reacted. The major competitors—Bharti Airtel, Vodafone, and Idea Cellular—announced massive price cuts. Every move these operators would go on to make was a reaction to Reliance Jio’s promotional approach. Idea Cellular made the biggest move by agreeing to a merger with Vodafone.

While there have been a lot of ups for Jio, there have been quite a few bumps along the way. Jio has had to contend with black marketers, unmet demand, opposition from within the industry and from politicians, problems with network speeds, and allegations of anti-competitive practices. Yet, at the end of it all, customers have benefited from this market disruption.

Jio vs Airtel

At the time Rio was entering the market, one of India’s traditional telecom giants, Airtel, was experiencing extremely poor wireless performance. The company reported a mobile Wireless Data Traffic in the Indian market of 1,106 billion MBs in December 2017. Airtel’s average revenue per person (ARPU) has fallen 15%. A sharp 57% cut in interconnect usage charges (IUC) and a high rate of customers downgrading to lower value packs has significantly dented Airtel’s operating profit margins.

Over the same period, Jio reported higher than expected operating performance and turned a profit of Rs 504 crore in the third quarter of the financial year 2017-2018. By 31 December 2017, Reliance Jio’s total subscriber base stood at 16.01 crore. Strong subscriber growth and a high ARPU have aided Reliance Jio’s rise. The value of the company’s shares has remained steady at Rs 154 since September.

.While Airtel’s margins were down nearly 180 basis points last year to 32.6%, Jio’s margins were up nearly 15 points to 38.2%.  Even on the subscriber additions front, Jio’s subscriber base has increased 22% to 160 million. The statistic for Airtel was 290 million, which represents an increase of only about 3%. Jio’s strong operating performance helped its to post a net profit of Rs 5.04 billion. This success came against analysts’ expectations, who had predicted growth at only a tenth of the true figures. Airtel does not report a net profit for its Indian wireless business, however, its earnings before interest and tax (EBIT) was Rs 1.66 billion, which is down 93% over the last quarter.

A positive outlook for Jio

Reliance Industries CFO Alok Agarwal said the telecom service had become profitable for the company three years before expected. Jio posted an operating profit of Rs 26.28 billion up 82% over its September quarter. This came despite the fact that network operating expenses went up 26%, and licence/spectrum charges rise by 55%. Jio also saw a gross subscriber growth of 27.8 million.

“The earlier-than-expected break-even at net profit level for Reliance Jio is a positive surprise for the Street. We maintain our Buy rating on RIL,” said Sharekhan research specialist Abhijeet Bora. Mukesh Dhirubhai Ambani, Chairman and Managing Director of the company, also expressed his confidence in the company’s future. “Jio’s strong financial result reflects the fundamental strength of the business, significant efficiencies and right strategic initiatives. Jio has demonstrated that it can sustain its strong financial performance.”

The crypto-move

Other companies have entered the tech market in the past by creating their own cryptocurrencies. Burger King, Kodak, Telegram, and Bank of England have all taken this route. Now, India’s fourth-largest telecom giant Reliance Jio is following the same path. The company is set to launch its own cryptocurrency, dubbed JioCoin. Akash Ambani, the elder son of Mukesh Ambani, is leading a 50-member team that is working on the blockchain technology for the project.

In the past two years, having its own payment gateway and online wallet has become integral to a tech company’s success. Airtel, Amazon, Uber, Ola, Flipkart and many others have launched their own UPI-enabled payment gateways or wallets. Currently, Reliance Jio has its own Jio Money wallet, through which it offers a range of deals and discounts on food, travel, accessories, books, magazines, and apparel. However, it is possible that with JioMoney the company is entering a saturated market, and may not see the gains that its telecom wing enjoyed last year.

Featured Image Source: Wikimedia