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Sunday, September 04, 2016

Jio - The Business Model!

Reliance Jio been making a buzz for a while and finally it is making a disruptive entry in the telecom industry by making Relinace Jio 4G services available from 5th September. Reliance Jio will surely revolutionize the Indian internet market reasons being – it has the largest optic fibre optic network in india (250,000+ KMs of high quality fiber optic cable and have installed over 90,000 eco-friendly 4G towers (camouflaged signal towers), 4G spectrum in all 22 zones of India, capital investment over Rs 150,000 crores which will further boost Indian economy and generate employment opportunities for millions,and as stated by Mr. Mukesh Ambani presently India is ranked 150th in mobile Internet rankings out of 230 countries. He believes that India's ranking will go up and it will be ranked among top 10 of mobile Internet rankings in the world. But it raises a concern that will Reliance Jio will live up to its promises and a cloud of confusion emerges in the market as well in the consumer’s mind that Relinace Jio will they be able to provide such cheap services in the telecom industry. The answer of this question lies in Jio's business model. 

Under the business model it mainly focuses on giving unbelievable tariff plans, free voice calling and cheap data plans but if things are analysed further, different story emerges.

Firstly, unbelievable tariff plans: Let us look at existing telecom service providers before coming to Jio's tariffs. It is an Industrywide practice to judge a mobile network operator's performance through a metric called ARPU (Average Revenue Per User.) In India ARPU (monthly) for almost all the telecom operators is around Rs.150. Now let us have a look at Jio’s tariff plans:

As you can see the lowest tariff plan is Rs.150 which means that Jio will be earning monthy revenue equal to average revenue per user i.e Rs.150 and this means that it is smart pricing not cheap service. So by default, Reliance is going to earn Rs 150 and not less than that. If we look closely, they are going to earn more than that. 28 days which generally is perceived as a month is not a month. There can actually be 13 (365/28) 28 days months. That means, ARPU per month is going to go upto Rs 162 (Rs 12 more than the existing operators.) Smart indeed!

Secondly, free voice calling: Reliance unlike many other mobile networks was built on a strong Data foundation. So even voice calls you do is treated as data in Jio's network. This technology is called (VoLTE - Voice over LTE). This allows company to provide superior quality calling service at cost effective price. In 2010, Mukesh Amabani, Founder of Reliance Jio acquired Infotel Broadband which had won 4G spectrum in India and renamed the company as Jio. After doing so company started building a fibre optic network which could handle 5G & 6G. (Generally the infrastructure of other operators have a 12/24 fibre lines but Jio has 64/96 fibre lines which could handle 5G or 6G in the future) Thus the way in which WhatsApp calls are free as internet is used for calling in the same way Jio will provide free voice calling using its fibre optic network laid before. Now considering Jio’s data plans if wifi hotspots and unlimited night data are rubbed out of the picture then per GB price of the plans are as follows:

0.3GB for Rs149 = ~Rs 497/GB
4GB for Rs 499 = ~Rs 125/GB
10GB for Rs 999= ~Rs 100/GB
20GB for Rs 1499= ~Rs75/GB
35GB for Rs 2499= ~Rs71/GB
60GB for Rs3999= ~Rs66/GB
75GB for Rs 4999= ~Rs66/GB

As stated by the company that it will lowest per GB data i.e Rs.50/GB. But the additional benefits (wifi hotspots and unlimited night data) are excluded even highest plan does not fulfil the promise.

Now question arises that is it really worth it? Answer is a resounding yes as it will be economical for users for who have high 3G/4G consumption it will reduce the bills by 50% (Provided data consumption remains same) and they are proving LYF branded handsets that are one of the cheapest 4G phones in the world. Despite low specs, it would connect homes of many people with 4g. It also provides bundle of benefits like 3 hours night unlimited, Wifi hotspot access, free voice-calls, free sms, no-roaming charges, free access to live-tv and other apps, etc which prove to be a great deal. I believe launch of Reliance Jio will change the face of the Indian telcom industry (which it has done even before its launch as its competitors have started making tariff changes). 

To conclude I think it will provide 2 to 3 times value for money to consumers through smart pricing,it is securing its future as consumers will instantly port to Jio and it will be able to capture a large maket share in near future. 

PS: To answer a few who ask: "What does it cost a company to provide an MB of data," the answer is Zero because once the infrastructure is laid, barring the cost of electricity, the cost of producing data is zero. The cost would instead be the cost of capital that allowed them to lay the fibre optic lines.

NOTE: The views expressed here are those of the author's and do not necessarily represent or reflect the views of DoT as a whole.

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