29.7 C
Delhi

Vodafone-Idea and Airtel should stop whining because they could’ve reacted before Jio debuted

Reviews

Why the Vivo X50 is the best camera phone south of ₹40,000

When I tested the Vivo X50 Pro I was in for a shocking surprise. Its camera blew away every phone I had...

Experimental act Hautewulf unveils debut EP “Addicted”

Delhi-based electronic music artist Mohan Kumar who goes by the moniker Hautewulf released his debut EP Addicted. The 3...

Review: Take note, the Galaxy Note 20 Ultra is big, powerful & Samsung’s best phone to date

Samsung makes tons of phones every year and largely for the last decade has remained the premier manufacturer of smartphones across the...

Why the Vivo X50 Pro is the new master of low-light photography

Usually, one expects the likes of Google, Apple and Samsung to dominate the conversation around smartphone photography. After all, these three companies...
Shivam Vahia
The rage has just begun!

In the last couple of years, 4G has been quickly being rolled out in developed markets including India. The first time I used it was in 2014 thanks to Malaysia’s Celcom. However, the new standard of mobile connectivity came to India from 2016. Incumbent players like Airtel and Vodafone were among the first to deploy 4G but limited to a few circles and regions. A huge chunk of their infrastructure was and still is depended on 3G as well as 2G.

In the second half of 2016, Reliance’s Jio launched pan-India services and offered truly unlimited data. The new company gave away free calls, data, and text messages for three quarters and onboarding hundreds of millions of subscribers in no time. Today, it is India’s largest telco and veteran players like Vodafone-Idea and Airtel are stuck with a huge pile of debt.

In a previous article, I’ve highlighted how Jio’s blitzkrieg has created a debt-trap for the telecommunication industry. The average revenue per user is the lowest in the world and the current tariff is unsustainable. All telcos, including Jio, have taken billions in loans and line of credits. While it can be said that Jio is partially responsible for the crisis, from a long-term perspective, the industry should actually blame itself.

How Jio cornered the market?

  • More than a decade ago, Reliance was split between the two billionaire brothers, Anil Ambani and Mukesh Ambani. Reliance Communications (a brainchild of Mukesh) had revolutionised the industry with its CDMA phones and was on an unstoppable force. Unfortunately, all assets of the Reliance empire were split between the two brothers and Anil received Reliance Communications. A non-compete clause barred Mukesh from entering the telecom space, but it was scrapped in 2010. Following the waiver, Mukesh started a fresh plan to take over the industry.
  • Mukesh quickly returned, pumping in more than Rs 2.5 trillion (US$ 34 billion) over the next seven years to build a speedier 4G wireless network, today is known as Jio. Keep in mind, this was seen as a very risky investment because tremors from the alleged 2G scandal were fresh and the industry was mired in corruption and regulatory hurdles.
  • Mukesh Ambani has never been shy of showing his keen interest in telecom. It was a known fact that Jio will be debuting soon and it will have a war chest (funding) like no other. So, the argument that Jio took everyone by surprise is astounding because an experienced telco like Airtel or Vodafone already had established operations and hundreds of millions of users. How can a company sleep for so long and never realise the oncoming hurdles?
  • Reliance was publicly acquiring Infotel Broadband Services Limited, a company that had won bids for the spectrum in 22 circles. This was the first company to basically have spectrum pan-India. Further, it partnered with Reliance Communications for spectrum and equipment sharing. It was a known fact that Jio will be debuting with 4G as it bare minimum standard, and this was the main factor that the competition did not consider.
  • Jio has been able to offer dirt-cheap data, unlimited calls, and unlimited messages because of its technological superiority. Unlike other players, it started operations with 4G and had no intention of supporting legacy standards (2G,3G). Thanks to a pan-India fibre optic presence, data bandwidth was freely available for them. Hence, it could afford to offer “unlimited” data for a fraction of the price.
  • Additionally, all calls were being routed through the internet, also called Voice Over LTE (VoLTE). It essentially lets Jio handle cellular voice calls over LTE networks, which results in HD voice clarity, faster call connectivity among others. Originally, LTE was supposed to carry only data and companies shifted to 2G or 3G for calls. This meant that multiple generations of technology had to be maintained, in turn, reducing efficiency.
  • On the flip side, India’s current infrastructure is overwhelmed with demand and hence data speeds have actually reduced over 4G. But, even data rates have changed drastically. In 2015, you’d pay Rs 250 per month for 1GB of 3G data while today you get 1GB data per day for 84 days at just Rs 350. Being connected is a priority over transfer speeds and users don’t complain because bare minimum requirements are easily fulfilled, something which Jio excels at. 
  • Incumbent operators also relied heavily on ancillary revenues from roaming charges and SMS. Thanks to a VoLTE network, Jio was simply able to completely remove these as a revenue option and serviced them as a free offering.

Airtel and Vodafone were overconfident despite the public threat of Jio

Jio’s game-changing model was just the tip of the iceberg. Vodafone-Idea and Airtel made no effort to improve quality and were minting profits for years from the legacy of their network and archaic revenue models while offering a technologically inferior network. Vodafone India was then a separate company with deep-pocketed corporate customers, Airtel’s domestic as well as African operations were doing well, and Idea too was printing a profit.

In fact, Airtel’s India operations reported their first net loss in almost 15 years in the fourth quarter of 2017-18 and joined Idea and Vodafone India in the red. In 2014-15, Airtel posted a yearly profit of Rs 5,183 crore, against revenues of Rs 92,039 crore.

Airtel’s Annual Results

In contrast, last week Airtel posted a quarterly loss of Rs 23,045 crore followed by Vodafone-Idea at Rs 50,921 crore — the highest-ever quarterly loss by any corporate in India. The two companies have been quick to say that the industry is heavily taxed and the spectrum is too expensive. However, this has been the case for ages and isn’t a recently announced measure.

  • Instead of improving quality and expanding their reach to rural areas, the veteran telcos had found a sweet spot and simply gave up on improving. Call drops were frequent, the network was spotty outside of metro regions, and customer penetration was lower. They also lacked a long-term vision because they were satisfied with the “wireless” market and never strived to excel at fixed-line connections.
  • Today, Vodafone UK isn’t interested in pumping any more money to its India unit. They seek a two-year moratorium on spectrum dues from the government. But, the same company invested US$ 7.2 billion in India in 2016 to take on Jio. Would you invest so much money if you think it’s not worth it? Reiterating again, Vodafone wanted to defeat Jio, but it just didn’t have the technical resources and was already quite late to the game. Now that all the cash has been burnt, who do you blame? Jio and the government.
  • What’s even fishier is, Airtel and Vodafone-Idea announced their quarterly results last week in close proximity of each other. Obviously, it was headline news that India’s telecom is crashing down like a house of cards and there’s a debt trap. Opposition got enough substance for the day and pressure was built on the government to “reform” the economy. Classic PR tactic that sent across a message perfectly.
  • Look between the lines and you’ll know why their losses are so big. The AGR dispute has been going on for 14 years and all this time these telcos got away with their pending tax dues. As an ongoing court case, those dues were being sidelined to show greener financial statements. We call this a calculated risk because your fate depends on the verdict. Unfortunately, the verdict didn’t go their way and now the two along with RCom owe the government more than Rs 90,000 crore in pending payments.
  • At the end of the day, if these payments lapse, the taxpayer will end up covering the costs. Even if relief is provided for spectrum charges, the exchequer loses expected income.

Now, Airtel, as well as Vodafone-Idea, intend to raise tariff from December. It’ll be interesting to see how Jio would respond because even though it is technically making a profit, long-term liabilities are huge and need to be covered up.

Naturally, a monopolised market by Jio will be disastrous and its predatory pricing is questionable. But from a business point of view, it’s hard to believe that one company’s debut completely put the other three out of business. The incumbents knew they were big enough to cause a ripple effect in the event of a fall, and chose to not act faster. 

More articles

LEAVE A REPLY

Latest article

Apple Announces Documentary Film “Billie Eilish: The World’s A Little Blurry”

The World’s A Little Blurry, the long-awaited Apple documentary on Billie Eilish will finally hit theatres and Apple TV + in February...

Kang the Conqueror is coming!

The rumour mills are up and running for the next Ant-man movie. Jonathan Majors has reportedly been cast as a villain, and...

New iPads, Apple Watch and services: Apple’s September event roundup

Apple virtually launched a bevvy of products from the company’s iconic headquarters in Cupertino. Keeping the new iPhone 12 for a later...

Apple “Time Flies” product launch music playlist

There is no doubt that Apple always kills with its music selection - be it for products or keynotes. It always leans...

This is the way – first thoughts on The Mandalorian season 2

Lucasfilm and Disney just dropped the trailer for season 2 of The Mandalorian, and I can’t keep calm. I’m easily excited about...