The Inquirer Vol 1, Issue 3 | Page 2

Multi-Disciplinary Classes

Analysing Jio ’ s entry into India ’ s telecom sector
In ISBF ’ s first ever multi-disciplinary class for students , faculty members from the areas of Economics , Management and Finance pooled intellect to analyse a truly remarkable industry occurrence over the last one year , the entry of Reliance Jio into the telecom sector . Here ’ s a look at what they discovered – and shared with students in a combined class – when they broke Jio ’ s entry down by applying curricular tools from each of their disciplines .
The Lens of Marketing Applying Kotler ’ s four Ps allows us to conveniently analyze Reliance Jio ’ s marketing mix .
PRICING : In terms of pricing , a penetrative strategy of o f f e r i n g e x t r e m e l y competitive tariffs allowed Jio to lure customers and capture market share at an unprecedented rate . Apart from Reliance Group ’ s deep pockets , this was enabled by the fact that even as a startup , Jio ’ s costs were nearly as low as that of the market leaders .
PRODUCT : From a product point of view , Jio is the only operator to provide only 4G ( or LTE ) broadband and telephone services , and not 2G or 3G . It now a l s o o f f e r s s e v e r a l multimedia apps , as well a s t h e e m i n e n t l y affordable JioPhone , JioFi 4G portable routers and Jionet Wi-Fi hotspots around the country .
PLACE : From a place perspective , Jio has adopted a pan- India marketing strategy for all its products , which is driven by 4G spectrum ownership across the c o u n t r y a n d J i o ’ s extensive fibre-optic cable network in partnership w i t h l o c a l c a b l e operators .
PROMOTION : Promotion is probably where Jio really stole a march on the incumbents ; its free welcome offer saw it acquire 16 million subscribers in the first month , the fastest rampup by any operator anywhere in the world . It also offered eKYC to make onboarding easy , introduced JioFi routers to o v e r c o m e t h e 4 G compatibility issue with existing handsets and even launched the “ Jio KBC Play Along ” game on its JioChat app .
The Lens of Finance
In 2010 , 4G spectrum across the country ’ s 22 telecom sectors / circles was auctioned by Government of India , most of whichwas bought by Infotel Broadband Services Ltd ( IBSL ). Soon after though , IBSL was bought out by Reliance Industries Ltd and renamed Reliance Jio Infocomm Ltd ( or “ Jio ”). This made Jio the only network operator with the ability to provide 4G services throughout India . It also enabled Jio to route voice calls through the Internet , giving them a low-cost structure which allowed for a penetrative pricing strategy that pose an immediate threat for incumbent operators . But since most acquisitions historically end in financial failure , this one too warrants closer scrutiny . Given Jio ’ s high asset base and huge debt of Rs . 1.24 trillion , depreciation and interest costs comprise a significant financial burden , nearly doubling the revenues required to break even as per some estimates . It therefore remains to be seen how Jio not only breaks even , but also recovers its investment of Rs . 2 trillion ( over 1.3 % of India ’ s GDP in 2016-17 ).
The Lens of Economics
The Indian telecom market , in the last decade or so leading up to Jio ’ s entry , had evolved a stable oligopolistic structure , with a few medium-to-large sellers ( or operators ), whocompeted on prices . As Jio threatened to disruptthe market in Sep ’ 16 , the leading incumbents formed a cartel to deny points of interconnection to it . However , this attempt to erect artificial barriers to Jio ’ s entry failed , and Jio also overcame the natural barrier posed by the 4Gincompatibility of existing handsets , through JioFi and then JioPhone . In fact , Jio ’ s rapid ramp-up soon led to major market consolidation , as existing operators sought to maintain market share and capture greater economies of scale to match Jio ’ s cost and price structures . Airtel acquired Telenor and Vodafone and Idea agreed to merge . For the consumer , the price war following Jio ’ s entry has led to a large decline in the cost , and increase in the availability , of telephony and data services . Yet , the “ bundled ” applications on the JioPhone potentially violate the principle of net neutrality . And it remains to be seen whether the gains from intensified price competition will outweigh and outlast the ( deadweight ) losses and inefficiency ( productive as well as allocative ) arising out of fewer sellers in the market .
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