Reliance Jio Vs The Rest: Ambani Rivals Seem To Be Crying Wolf A Bit Too Soon

It is probably going to get uglierbefore things settle down in the Reliance Jio versus the Rest contest for space in the mobile customer’s phone and wallet.

Soon after Mukesh Ambani announced last week that voice calls would be free for Jio customers, the Cellular Operators’ Association of India (COAI) dashed of a letter to Nripendra Misra, the Prime Minister’s Principal Secretary, that this would lower their revenues.

The letter said: “Unloading tsunamis of asymmetric incoming voice traffic from a (potential) 100 million Reliance Jio customers can lead to the weighted average voice realisation of existing operators plunging from 30-40 paise per voice minute to 22-25 paise per voice minute or even lower.”

This is pathetic. For an organisation, which collectively has close to one billion customers already, to raise a banner of protest against a new entrant is not only silly, but indicative of a defeatist mindset. The right place for incumbents to fight a new competitor is the marketplace, not the Prime Minister’s Office.

However, it is more than likely that the battle will first move to the regulator, the Telecom Regulatory Authority of India, then the appellate authority, and finally the Supreme Court. This could take months to settle. It is unlikely that Reliance will ultimately lose this battle in regulatory fora, especially since its actions are pro-consumer rather than anti-competition.

So what are the incumbents really trying to do?

The chances are they are trying to buy time to prepare their own responses to the Jio threat, and get their strategies in place. The attempt is to delay, and not stop the inevitable.

Playing dirty to delay new competitive threats is nothing new for Indian businesses. When the cola wars at their peak, incumbents used to break the empty bottles of the new entrants on the way back to bottling factories so that it takes time to ramp up production of colas. In the newspaper industry, it is routine to ramp up advertising rates whenever new entrants enter the scene so that the budgets of potential advertisers are squeezed. In malls and kirana stores, FMCG players buy up displays so that competitors’ products remain invisible for a length of time. In the telecom industry itself, the public sector incumbents— BSNL and MTNL— tried playing hardball on providing more points of interconnect to the new private sector players. But none could prevent the inevitable from happening.

So, this is effectively what the COAI’s incumbents are up to— delaying tactics.

However, it is worth debunking their arguments against Jio’s free voice calls totally.

First, as their own submission notes, even if a “tsunami” of free calls were to hit their networks once points of interconnect are increased, their revenues will fall from “30-40 paise per voice minute to 22-25 paise”. This is hardly catastrophic, since competition increases volume usage. Margins per minute might thin down, but volumes could go up over time. It can only be win-win at some point. In any case, Ambani is not going to keep tariffs incredibly low forever. He intends to make money from his Rs 1,50,000 crore investment (read what he had to say in this Economic Times interview)

Second, it can hardly be the case that the incumbents did not know Jio would offer free calls, as Mukesh Ambani had indicated the possibility years ago in newspaper interviews. And, it isn’t as if big incumbents did not know what he would do— shift the business from voice to data. Data currently is in only 25-30 percent of incumbents’ revenues, and logically they should have been pushing harder to get data volumes up and beefing up their network capabilities even before Jio entered the picture. The Jio launch has been delayed so much that the incumbents can hardly claim they were surprised. They had all the time in the world to be ready for it.

But they should also welcome Jio’s intrusive entry, for this is to force the weaker players to exit, enabling tariffs to rise after a while. (See what market leader Sunil Mittal had to say on how many players will be left after Jio’s entry).

Third, even voice is ultimately data in an internet-protocol-based network. The move towards “free voice calls” is not some new idea from Mukesh Ambani, but has been ever-present in software like Skype and Whatsapp. So incumbents in telecom can hardly claim this is some new animal they are expected to battle.

The incumbents have solid advantages that Jio does not have— a large customer base. The top three, Airtel, Vodafone and Idea, have nearly 650 million customers between them. This gives them a ready base on which to sell everything from banking services to financial products. Jio will have to fight for every new customer, by forcing them to switch or buy a second mobile connection with better data capabilities.

While switching operators has become easier with the availability of mobile number portability (MNP) and the existence of dual-sim phones, what Jio can do, surely the incumbents can do too. As of the end of May, nearly 219 million mobile customers had sought to port their numbers to new operators, and 80 percent of mobiles sold today have dual sims. This itself should have told the incumbents that their services have been poor. Instead of ramping up investments, they preferred to milk profits when they could, and learning to live with churn.

What Jio might end up doing is to find a second slot in the customer’s smartphone in the initial months; the incumbents have all the resources and firepower to dislodge her. It does not do them any credit to fight shy of fighting this war for the customer’s wallet.

Jio’s rivals need to read their management books again: focus on the customer, not competitors.