IMPACT OF JIO ON TELECOM INDUSTRY

AARON ETHAN CHARLES DSOUZA

1928801

Submitted to
Dr Joshy K J

MASTERS OF BUSINESS ADMINISTRATION (FINANCE MANAGEMENT)

Department of Management Studies
Deanery of Commerce & Management
July 2019
Reliance Jio is a leading Indian telecom company which is owned by Reliance Industries Limited.
As per recent data, Jio is the second largest mobile network operator in India and the sixth largest
mobile network operator in the world with over 314.80 million subscribers. The company operates a
national LTE network with coverage across all 22 telecom circles. Jio does not offer 2G or 3G
service, and instead uses voice over LTE to provide voice service on its network.

Jio launched its beta version for employees on 27th December 2015 and became publicly available
on 5th September 2016. Jio had shot to fame during its launch as it offered free services to the public
for the first three months as part of its “Welcome Offer”. After completion of the offer, free services
were extended for another three months as part of the company’s “Happy New Year Offer”. The
company also promised to offer data packages which were much cheaper compared to their
competitors and life time free calling.

Reliance Jio’s offer of free services was opposed by several telecom companies. Bharati Airtel, the
largest telecom company at that time filed a complaint with the Competition Commission of India
stating that Jio was “creating a monopoly for itself by indulging in abuse of dominant position,
predatory pricing by offering free services, and adversely affecting competition by way of predatory
pricing, anti-competitive behaviour and activities”.

After a investigation into the case, the Competition Commission of India had found that Reliance
Jio was not guilty of predatory pricing. It had argued that in a competitive scenario, where there
were several large companies operating, it would not be anti-competitive for an entrant to
incentivise customers towards its own services by offering attractive offers and schemes. The
commission had also noted that offering free services was a short-term business strategy of the
company to penetrate the market and establish its identity and therefore could not be considered
anti-competitive in nature.

Although it was found that Reliance Jio was not involved in predatory pricing, it is observed that
the rapid growth of Jio within such short span of time in the Indian market has come at the cost of
other brands or network providers in the country.The company has been able to penetrate the Indian
telecom industry in the best possible manner through its strategy of offering deep discounts and low
price services.

The entry of Reliance Jio had a huge impact on the entire telecom industry. The company was
offering plans at extremely cheap prices compared to the current market prices. In order to compete,
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all other telecom companies had to reduce their prices drastically and offer plans comparable to Jio.
This impacted their profitability drastically. It was observed that the monthly average revenue per
user (ARPU) has declined by a massive 42 per cent over the past one year.

The entry of Jio into the market was however a big advantage to the customers. It is observed that
the telecom subscribers base in the country have increased 28 per cent after Jio’s entry. The data
consumption pattern of consumers has increased sharply due to attractive packages offered by
telecom companies.

Another important development in the industry after Jio was introduced was the rise in the number
of mergers and acquisitions. Several telecom companies found it difficult to compete with Jio as
they did not have enough capital and therefore used this method. Some of the important mergers are
Bharati Airtel & Tata Teleservices; Bharati Airtel & Telenor; Vodofone & Idea.

We can conclude by saying that though experts argue that Reliance Jio did not use unfair practices,
they introduced a number of offers like free voice calling and reduced prices which created a lot of
radical and unexpected changes in consumer’s behaviors and competitor’s strategies. The impact of
this new entrant effected the equilibrium in the mobile industry and made rivals vulnerable that they
resort to mergers and acquisitions in Indian mobile network providers.

1. Did Reliance Jio use predatory pricing to capture market share? Justify.

No, Reliance Jio did not use predatory pricing to gain market share. According to the Competition
Commission of India, in a competitive scenario where there were several large companies operating,
it would not be anti-competitive for an entrant to incentivise customers towards its own services by
offering attractive offers and schemes. Also, offering free services was a short-term business
strategy of the company to penetrate the market and establish its identity and therefore could not be
considered anti-competitive in nature.

2. What was the impact of Reliance Jio’s entry on the telecom industry?

Reliance Jio’s entry had a huge impact on the entire telecom industry. All telecom companies were
forced to reduce their prices drastically in order to compete with Jio due to which the average
revenue per user declined by 42 percent. It was however good for the customers. The customer base
had increased by 28 percent after Jios entry and the data consumption per user also increased

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significantly. Many companies found it difficult to compete and therefore adopted the strategy of
mergers and acquisitions.

References:

CCI rejects Airtels Predatory Pricing case against Jio ( June 2017); Business Standards

Predatory Pricing – A Case Study on Reliance Jio ( July 2017); Speaking Threads

The game changer strategy of reliance jio – a case study on predatory pricing Saikat Gochhait, and
d P.C Tripathy; International Conference on ICT Management for Global Competitiveness and
Economic Growth in Emerging Economies