5 Points on RJio Opera in India Telecom Industry

By Dr T H Chowdary

The much publicised and for long- expected launch of 4G services by Reliance Jio is rattling the incumbent Telcos and raising tantalizing expectations in consumers of information-telephony, text, video and data. R-Jio says it invested over Rs 1,25,000 crore in the past five-years to build its all –India network of radio base stations (RBSs) including antenna mounted towers and the optical fiber transmission cables connecting them to switching centers. R-Jio promises free telephony and all types of information services at “superfast” speed, at rates incredibly lower than those of its incumbent rivals, chiefly Bharti Airtel, Vodafone, Idea Cellular and BSNL. Anticipating the low prices touted by R-Jio, incumbents have announced reduced tariffs and BSNL among them, the government –owned consistently loss-making (for the last several years) customer-losing PSU boldly boasts that it would compete price-wise with R-Jio. Of course, only a PSU can afford to be immortal despite haemorrhaging losses, as the owner, Government of India has limitless power to fund losses.

Let us examine the claims of R-Jio about its low prices, market share and durability.

  1. The first issue is can private sector company price its services below costs. A government –owned company can do so by asserting that subsidised service are “public goods” like electricity for farmers and the poor; intra-city rail and road transport and food-grains, cooking gas and so on. A private sector company has to at least recover costs, which include debt-servicing and depreciation. It appears that the tariffs R-Jio is indicating will not produce the revenues which can meet costs.
  1. R-Jio has competitors. Prices below costs are termed predatory –pricing. We have the TRAI and Competitions Commission which are statutory bodies. Will they allow predatory pricing. The accounts of Telcos are liable to audit scrutiny by the Comptroller and Auditor General (CAG) of India. He has already subjected Private-Telcos’ (P-Telcos’) accounts to audit by him on the ground that revenue-sharing condition of the licences entitles CAG audit of the “adjusted” revenues of P-Telcos. Predatory pricing affects not only non R-Jio, P-Telcos but more disastrously, the state-owned BSNL.
  1. Yet one more factor is market-share. R-Jio hopes to have 90% of information consumers to itself. The TRAI as well Competitions Commission will step in to contain the market share within the legally capped 60%.
  1. When Facebook offered “Free Basics” at zero price for certain websites, the company was denounced as violating net neutrality by preferential access to and use of some only websites. Its declared intention of connecting the unreached millions was ridiculed. It would be interesting what the warriors for “ net neutrality” would say about the predatory pricing by R-Jio (zero price offered by Facebook was also could be termed predatory).
  1. Entry of Reliance into any segment of any marketed service has always been disruptive and threatening. Reliance’s revenues are more than those of many State governments (so it’s debt too). Just as denizens of a forest quake when a lion on prowl roars, so are the incumbent P-Telcos rattled as R-Jio is stalking the market. But India is a land where laws rule and not lions. So, it would be interesting to watch the spectacular drama where the actors besides R-Jio are other P-Telcos, BSNL, TRAI, the Competitions Commission, the Government and Parliament of India.

 (The author, Dr T H Chowdary, is former Information Technology Advisor: Government of Andhra Pradesh  and Chairman & Managing Director, Videsh Sanchar Nigam. View expressed in this column are personal)

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