Reliance Jio: Marching Toward Monopoly
|
Case Code: ECON080 Case Length: 12 Pages Period: 2017-2019 Pub Date: 2020 Teaching Note: Available |
Price: Rs.300 Organization : Reliance Jio Infocomm Limited Industry : Technology & Communications Countries : India Themes: Monopoly, Free Market, Industry Consolidation |
Abstract Case Intro 1 Excerpts
Introduction
In July 2019, Indian telecommunications company Reliance Jio Infocomm Limited (popularly known as Jio) overtook its rival Vodafone Idea Limited (Vodafone Idea) in terms of operating revenue to become India's leading telecom operator. 1 In less than three years of its launch, Jio emerged as the leading telecom service provider in India, offering unlimited voice calling and data benefits that lured customers.
Jio disrupted the Indian telecom market with its cheap tariff plans, which fundamentally transformed the market. With its growing popularity, competitors faced financial turmoil on the one hand and rapid loss of customers on the other. To counter Jio's aggressive growth, the Indian telecom industry witnessed massive consolidation that left smaller telcos with no choice but to either merge with their competitors or exit the sector. As a result, Idea Cellular Ltd. and Vodafone India merged to create the country's largest telecom firm; small companies like Telenor ASA exited the market.
As of 2019, apart from Jio there were two large private telecom players – Vodafone Idea and Bharati Airtel Limited (Airtel). These two companies were facing shrinking revenue, mounting quarterly losses, and high debt in the September quarter of 2019. The companies, whose very survival was at stake due to Jio's growing popularity, were taken aback when in October 2019 the Supreme Court (SC) of India gave a ruling on Adjusted Gross Revenue (AGR) that plunged the companies deeper into a crisis. While these companies calculated AGR only on revenue from telecom services, the government calculated it on all the revenues earned.
Analysts felt that the SC ruling might have dealt a death blow to the telcos, especially Vodafone Idea and Airtel, which were required to pay the government over Rs.400 billion and Rs.410 billion respectively. This included interest on license fees and a penalty which amounted to 63% of the total amount due, some of it dating back to 2005. Jio was asked to pay only 413.5 million since it was a late entrant into the sector.
Jio, which started its operations in September 2016, quickly became popular in the industry thanks to the free services and the extremely cheap plans it offered to win subscribers. In the September quarter of 2019, the company posted a net profit of Rs 9.90 billion, up 45.4% year-on-year, as data consumption increased on the back of more subscribers onboarding the network. In September 2019, Jio added 698,300 new users to its network, taking the total number of its subscribers to 3.55 billion, while Vodafone Idea and Airtel lost over 4.9 million users in September 2019.
Given Jio's dominance in the sector, the Cellular Operators Association of India(COAI) urged the government to provide immediate relief to the sector. Failing this, they said, two of the three private mobile operators – Airtel and Vodafone Idea, which provided services to about 63% of the subscriber base, would face an "unprecedented crisis." The industry association said that the adverse consequence of the SC order could lead to India ending up with a telecom sector monopoly by Jio. Industry analysts suspected that the lack of competition in the sector would entail indiscipline, which might not be good for end customers. However, Jio's strategic growth plans, combined with the favorable environment, signalled that the brand was becoming stronger at the cost of rivals, and the possibility of this leading to a monopoly in the Indian telecom sector.
Buy this case study (Please select any one of the payment options)
| Price: Rs.300 |
Price: Rs.300 | PayPal (7 USD) |
