The onslaughter of Jio and telecom industry

This brand has clearly shaken up the Indian Telecom and has become a rampant customer forager. They have created many records in the process of strengthening their hold on the telecom market like:-

• 100 million(10 crore) customers in 5 months of operation is unheard of not only in telecom but any sector in particular, this is faster then the growth of users on Facebook!!
• Jio is the Largest startup ever , Ambani has pumped 1 lakh 70 thousand crore rupees in the Jio project till date.
• After advent of Jio India has become No 1 consumer data in world rising from the 3rd position by beating China and USA.
• It has offered free data and voice to all its customers for at least 6 months at a stretch, something heard only in the movie Kingsman : The Secret Service before.

But why did they do this at first place? Could they not launch their services as a regular operator??

To answer this question let me take you 10 years back in time around the year 2007 when new telecom companies like the TaTa DoCoMo, MTS,Uninor,Virgin Mobile,Videocon,Loop Mobile,Aircel,Etisalat had flooded the Indian telecom market had come out with innovative scheme like 1paise per second tariff, 1paise per SMS and what not.


These companies looked as revolutionary as Jio at that time with great prospects to thrive and become dominant players in the telecom sector.
            These companies have largely failed the test of the time one can say safely as most of them have either discontinued their operation ( Loop Mobile, Virgin, Etisalat) have been taken over by larger telecom operators ( MTS, Telenor, Videocon) or are embattled in a legal seperation course (TaTa DoCoMo).

These telecom companies have made a little dent to the Big Three of Indian Telecom (Vodafone, Airtel ,Idea). So it is necessary for a new entrant to analyze the failure of these startups and learn from there before making entry into the telecom market.
 

3 Mistakes of their Life(sorry Chetan)
 

1. Customers who joined intially left these networks as they were not present Pan-India nor did they have good network strength in Urban Area's making their services useless at times when customer needed it the most.
   
2. Inability to increase their ARPU(Average Revenue per User per month) to more than a healthy 100rs.
   
3. Buying more than necessary large amount of spectrum at high prices in their telecom circles.
   
    Too Technical? let's simplify this
   
   Telecom buisness is different from regular buisness, Normally you make some % of profit when you sell your goods at a price. This is not so in Telecom. To start a Telecom Company you require a permission i.e. a license from government. These licenses are highly specific, a license only give permission to operate your towers  in a specific region called a telecom circle ( e.g. Gujarat , Maharashtra, Delhi , Mumbai, U.P(East) , U.P. (West) , 7 sisters) that too only using specific wave signals in terms of frequencies.You need more frequency if you have more customers. This is the first investment a telecom company makes. There are 22 telecom circles in India and you require approx 5MHz of spectrum to run your phone company properly in these circles. 1 MHz of spectrum in only 1 circle costs upward of 500 crore Rs mininmum approximately. Imagine how much you need to pay just to get permission to start your telecom company.
   
   Once you have got the spectrum you must place your telephone exchange , mobile towers, sales outlets and customer support. Now you are ready to start your own Telecom company. To make profit you must quickly recover your previous investment as well as pay the operating cost of your network( Electricity and Maintainence). A Telecom company has fixed monthly expense as they have to keep their towers and network up and running even if there are no calls or customers. They will have to spend money on upkeep of their network even at loss, in telecom you cant easily shut down towers or scale down operations. To make profit one must earn more than they spend.
   
   How to earn more than you spend?
   There are two ways in which a company earns more than what they spend
   
   1. Having lots of customers
   2. Having customers which are high paying (High ARPU)
   
   So the net income of a company becomes =  (no. of customer) X (ARPU)
   
   for large and profit making companies ARPU are very high like Vodafone(180 rs) Airtel (220) Idea(190) while companies like BSNL have ARPU of 78 rs and telenor 92. This gives us clear picture of how the Big Three earn twice as much as small companies per user.
   
   Now its equally important for the company to have lots of customers, Airtel has 26 crore, Vodafone 22 crore and Idea has 20 crore while telenor has a mere 5 crore. The difference in income is clear when you multiply (customers)X(ARPU) for Airtel and Telenor.
   
   It is a double whammy for a new entrant to thrive in such an environment as for customers you have to give a good scheme by sacrificing revenue or if you focus on customers you have to give up on number of customers any way you lose.The question now is how can a new operator get both ARPU and Customers to survive?
   
   Do it the Jio WAY.....
   
   Simply put Jio did both by using their Welcome offer and Happy New YEAR offer to first attract lots of customers in Phase-1.They already have 10 crore+customers in just 6 months something companies like DoCoMo , Telenor ,MTS have not been able to achieve even after 10 years of operation.(Woa!!!)
   
   Master stroke-2:- Jio has addicted people to internet by giving them free data and voice calls to their customers, this is their biggest asset and to monetize this asset they have launched the Jio - Prime offer in which one can continue the same offer for next 1 year by paying 99 rs first and then by paying 303 rs per month.
   
   This way Jio will have an ARPU of 303! from day one of their operations with a massive 10 crore + subscriber base needless to say they will be making more revenue than the BIG THREE if all goes according to plan.IF you paid careful attention you must have noticed that I have directly revealed Master stroke-2 of Jio skipping the first one.  Jio made its first master-stroke way back in 2007!
   
   Jio's First Master Stroke
   
    Jio's First master stroke was to avoid the the 3 mistakes previous new generation telecom operators made that too in 2007 before these new age telecom operators had comited  them.Lets go back to 2007 to have a first hand like experience of Jio's masterstroke.
   
   Time: 2007
   Place: Telecom spectrum auction venue
   Hero: Jio
   
   You are at the fiercest telecom spectrum auction in the history of the telecom industry.All Big shots National and International are there to participate the telecom spectrum auction. Old players want to consolidate their positon in the Indian Telecom Industry by buying additional permits (spectrum) while new players are egarly waiting to tap into this large oligopoly market and make their bit. All of them have large financial backing and long thought out stratergy planned with the help of international industry experts to make the most gains. In fray are several chunks of 2G and 3G spectrum in various telecom circle. Our over ambitious Government also has a special Auction item: Pan -India 4G spectrum to provide mobile internet (no phone call permitted).
   
   In first few round of Auction all Players bid aggressively for 2G and 3G spectrum completely disregarding the Pan-India 4G licence. This was obvious choice in 2007 as who would invest in 4G technology when India did not have 3G internet and income from mobile internet was less than 10% of their total revenue. Enter the Underdog:- Infratel Broadband a company few knew about and starts bidding aggressively for Pan-India 4G seldom outdoing its own previous bids. Major players like Airtel think this to be some Lunatic firm but are highly curious about it. They find out Infratel Broadband is a wired broadband company operating from Mumbai, having only one customer paying 16 lakhs per year for a leased line and only one office having value of 2.5 corer in Mumbai. The net value of the company did not exceed 5 corer. Now the Big shots were relived about Infratel Broadband that was not a big company and could do a little damage to them. The spectrum Auction gets over and Infratel Broadband wins 4G licence for 30,000 crore Rs.
   
   Sunil Bharti Mittal and Kumar Manglam Birla had a good night sleep thinkingabout their prospects and being assured that Infratel Broadband would default in their payment for spectrum that night.
   
   Next morning they wake up in horror knowing that RIL has overtaken Infratel BroadBand and renamed it as Reliance JIO Infocomm Limited. (mild laughter)