Reliance Jio Business Model: The Winning Plan?

“Customers should pay for only one service, either voice or data. Not both. The world over operators charge for only data while voice and messaging are essentially free,”

-Reliance Industries Chairman Mukesh Ambani.

I. Introduction

• Reliance Jio Infocomm Limited, doing business as Jio, is a LTE mobile network operator in India
• It provides wireless 4G LTE service network (without 2G/3G based services) and is the only 'VoLTE-only'
• The services were commercially launched on 5^th September 2016 with Bollywood superstar Shah Rukh Khan as its brand ambassador

• The network has brought a disruption to the existing telecom industry in India by offering affordable 4G service to broad segment. 
• Reliance Jio acquired 100 mln users in 170 days – a world record in its own right
• Jio brought a different model altogether by simplifying the tariff plans at an unbelievable price after six months of free 4G service

II. The Game of Tariff

• Before the advent of Jio, India’s data tariff (based on current average revenue per GB of Rs. 228) was significantly higher than that of many developed and developing countries.

• As per the Analysys Mason report, a 75 per cent cut in data tariffs (average revenue per GB of Rs. 57) alone could increase the user base to 645-667 million SIMs, and the level of monthly data usage to around 4.2-4.3 GB per SIM by 2019-20. 
• Customers didn't have an option as every telco increased the price of data packs (2G, 3G). Most internet providers limit the data usage basically because they did not have enough bandwidth to handle so much data. 
• Jio has laid an strong fiber optic network which was designed to even handle the 5G and maybe 6G. 
• The new 4G technology also permitted free voice calls over internet (unlike the 3G or the 2G networks)
• This led to a price correction (which was overdue for a long time) and price of data packs which had always been on the upward direction during the last many months started to go down thereby making data more affordable to every Indian. 

III. Some Areas of Concern for Jio Model

• The dispute between Reliance Jio and incumbent operators over points of interconnectivity. Jio had accused Bharti Airtel, Vodafone and Idea Cellular of providing insufficient points of interconnectivity leading to call drops.

• With additional users to the Jio network, the speed of 4G data services have come down drastically. 

• A recent ad by Airtel claiming it to be the fastest 4G network (later asked by ASCI to modify or withdraw the ad from April 11) also raised questions over the Jio 4G speed. 

Even the Jio apps have not shown consistent performance and also all those who don't have VOLTE technology-supported phones fail to make voice calls without the use of Jio4GVoice app. 

• ET Now report that claimed that the consumers have not shown huge interest in the Jio’s Prime offer as a long-term option.

IV. The Jio Advantage

• Jio has the largest optic fiber network in India (250,000+ KMs of high quality fiber optic cable and have installed over 90,000 eco-friendly 4G towers). 
• Another 100,000 towers are being installed to the existing ones with an investment of Rs. 200,000 crores.
• In just one month, over 72 million (and still counting!) Jio customers signed up for JIO PRIME showing a strong faith in the network. 
• Till date, Airtel, Vodafone and Idea Cellular have used 12-24 fibre threads, while RJio uses mostly cables with 288 fibres (in some cases 96 fibres) allowing to offer more speed. 
• It is one of the handful few operators in India that officially offer 1Gbps broadband in 100+ cities.
• The biggest edge Jio has over its competitors is its disruptive pricing strategy.
• Even after the free Happy New Year offer expires (April 15 2017), its tariffs remain the cheapest of all the players in the market.

V. Jio Business Model

A. Data Recharge

In India, the monthly average revenue per user (ARPU) the current network providers get is around Rs. 150 per month. So, the average ARPU is still maintained in the tariff plan. 

• Now, with this plan, the next plan recharge is of Rs. 303 (tariff plan released earlier in September 2016 had Rs. 499 as the next plan over Rs. 149) which now pushes for a higher ARPU. This fact can be further confirmed after noticing an increasing wider gap as we move to higher pack (Rs. 499 to Rs 999).
• All these plans are for 28 days which can easily be perceived as ‘a month’ by most people but we will be paying for 13 ‘billable months’ (365/28=13.04).
• Also, the initial Prime recharge of Rs. 99 locks the customer for one year from easily switching to any other network provider.
• As far as voice calls are concerned, Jio has an all IP network, so all such calls will go through the internet just like skype and no point in charging for voice.
• The only costs Jio incurs is around Rs. 0.14 as interconnect fee to the operator’s network you called which is a small temporary operational cost and may be made free by TRAI in future.

B. Low Price  4G Smartphones

• Reliance Jio goes to developed countries/developing countries like China to buy their previous generation 4G phones for cheap price in bulk. 
• As no one wants to buy these phones, so obviously, the manufactures will happily sell it for a very low price after re-building them.
• LYF phones were bundled with Jio preview offer and offered under different price points.
• Jio can now also venture into the mobile device market to sell these phones and make profit. 
• Also, they get to test their network and solve the bugs.

C. Mobile Applications

• It is important to note that apps are something that we consider as bloatware but not with Jio apps. 

• The company can make any type of apps and dominate the category with minimal efforts. 
• Jio Play has a potential to become a package of different TV channels itself. 
• Jio Beats would become the next music channel. 
• Jio Money can dominate all mobile recharge sites. 
• JioOnDemand can become the next Netflix. 

VI. The Way Forward

• Jio has acted as a disrupter which destroyed the profit margins in the traditional business, gaining market share and then dominating the new business. 
• The next 12-18 months will be a tough time for telcos. At one side they would need to continue to invest in data, but will see their revenue spiral downwards. 
• With rising industry debt level, coupled with lowering of the prices, the finances will be seriously stretched. 
• Market leader Bharti Airtel's has seen its net profit plunge 55% in the October-December quarter while Vodafone India posted a 1.9% drop in service revenue in the same period, No. 3 Idea posted its first net loss since listing in 2007.
• This has forced the big ones such as Vodafone India and Idea Cellular, and smaller ones such as Reliance Communications, Aircel and MTS – to merge among themselves, and some like Telenor to exit totally. 
• the companies need to think on how to eventually recover all the capital invested in next generation networks, if retail pricing moves to marginal cost. 
• Jio is great only for top 30 crore or 40 crore people of this country. This still does not attract another 100 crore people and leaves a big profitable business opportunity to tap. 
• One has to figure out whether data for Rs 20 - Rs. 25 a month can be made possible. The forgotten one billion don’t need Rs. 25 for a one-day plan or a two-day plan, but some recharge option for a Rs. 25 a month data and voice calls.

Let's see who wins this next battle!