Although India is the second largest telecom market in the world with more than 1.3 billion population, 1.1 billion subscriptions and close to 800 million unique mobile phone users, it has under 400 million smartphone users, which shows that the market is still highly underpenetrated. India has undergone a huge wave of disruption in the last 24 months. Before Reliance Jio's entry in 2016, India was home to more than 12 mobile operators serving close to a billion connections (mostly 2G). However, with its nationwide “4G LTE only” network launch built with investments of more than $37 billion (including spectrum) by the oil tycoon Mukesh Ambani, Reliance Group Chairman, Reliance Jio kick-started a disruptive “price” and “data consumption” war. Most of the operators were not prepared for this kind of onslaught. These operators aligned themselves to just cash out on 2G voice and data subscribers while rolling out the 3G/4G network at a snail’s pace.
In just two years since Jio’s entry, some of these slow-moving and long-tail operators were forced to exit or file bankruptcy, while other mid- to large- size operators decided to either merge or be acquired by bigger rivals such as Vodafone and Bharti Airtel. So the number of telcos in India is down to just big three Vodafone (merged with third largest operator Idea Cellular), Bharti Airtel (acquired Telenor, Tata Teleservices), and Reliance Jio (acquired assets of RCOM-Aircel-MTS, which filed for bankruptcy) along with a couple of state-owned service providers (BSNL, MTNL).
Democratizing 4G LTE adoption and shaping consumer data consumption habits
Reliance Jio has raced to 215 million 4G LTE connections in the first 25 months of its launch, capturing close to two-thirds of the 4G subscriber market share in India at the end of the second quarter of 2018. This has been a significant feat, driving an inflection point for the 4G LTE adoption directly from the 2G era.
While the number of 4G connections has increased exponentially thanks to Jio and other operators trying not to lose out to Jio in the 4G race, 4G data consumption has grown multifold. For example, Reliance Jio recorded an average of 10.6 GB per user per month of 4G data consumption in the second quarter of 2018, one of the highest in the world for any operator. Comparatively, before Jio’s arrival, average data consumption in India networks was close to 300 MB per user per month (mostly 2G/3G). To put things into context further, Jio users made an average of 744 minutes of VoLTE calls per month and consumed 3.4 billion hours of video content per month, or close to 15.8 hours of video per user per month, during the second quarter of 2018. Jio’s network generated 6.4 exabytes of data traffic alone in the second quarter of 2018 and contributed almost three-fourths of the entire country’s 4G data traffic for that period.
This has been possible because Jio democratized the “mobile internet” access with its aggressive pricing strategy and pan-India 4G coverage. Jio has been offering unlimited voice calls, texts and 1 GB data at just 7 cents per day or 28 GB data at $2 per month. While this is tiny when compared to the average of $45 of ARPU per month in USA, Jio is already making money and profitable.
While some might refer to this as a mere price war to sweep the competition away and acquire users, however, this was the only way to catalyze the 4G revolution in a high-scale underpenetrated market such as India. On the devices side as well, Jio’s massive launch accelerated OEMs to transition their entire portfolio to 4G VoLTE-ready smartphones. Furthermore, Jio’s entry has been a blessing in disguise, shaping the highly competitive and crowded Indian market to reach a steady-state equilibrium position. The market now has fewer formidable operators promising healthier competition and scalable opportunities across. We believe three or four operators offers the perfect balance in any market to realize sustainable scale and profits. This is much better compared to the 12 debt-ridden, unprofitable, low-scale operators India had 24 months ago, a lose-lose situation for both operators and consumers.
Jio’s race to 215 million 4G subscribers in 25 months:
Jio’s actual business model and next disruptive steps
Having discussed the rise of Jio, the key here is to understand Jio’s business model and long-term vision behind its strategy of commoditizing voice and data. This strategy has helped Jio disrupt and outcompete rivals in the short term, scale quickly and build a huge base to monetize. Jio’s offerings comprise much more beyond just voice and data to include hardware, software/apps, content and services.
Jio offers a bouquet of sticky mobile applications and services bundled right from Jio TV (live TV), Jio Cinema (on-demand movies, TV shows), Jio Music (streaming music store with millions of HD songs in 17 languages), Jio Tunes (caller tunes), Jio Mags, Jio XpressNews, Jio Newspaper (news, newspaper and magazines), Jio Money (mobile wallet for online and offline transactions), Jio Cloud (free and paid cloud storage subscription), Jio Security (antivirus, device security and privacy) and more. This is the first step of monetization for the Indian conglomerate on mobile, and it creates stickiness within the Jio ecosystem, driving tremendous cohesive value never seen before by any operator globally.
In our hypothesis, Reliance Jio’s business model will be fully realized as it shifts gears to becoming a media, content and advertising company, similar to what Verizon and AT&T have been trying to achieve with a series of multibillion-dollar acquisitions over the past two years. However, Jio’s strategy and execution has been sublime at every stage since their industry entry by offering trial access to millions of users and following it with disruptive pricing via the Jio Prime program to launching the disruptive 4G feature phone “JioPhone” to go after the 400 million-odd 2G feature phone users and help them leapfrog to its 4G network and connect to 4G internet for the first time. In just nine months, more than 40 million JioPhones have been shipped in India.
The next step involves rolling out Jio GigaFiber across 1100 cities nationwide to realize a comprehensive and unique quad-play strategy. This quad play would involve offering 1. FTTH broadband internet, 2. TV content packages, 3. voice and 4. smart home offerings.
The fiber broadband is complemented with content packages (stakes in Viacom India, Eros International, partnerships, etc.), smart home devices including smart TVs, set-top boxes, security solutions, lighting, smoke detectors, smart speakers, Wi-Fi extenders and a variety of integrated services. Jio aims to reach 50 million GigaFiber connections in the next 24 months with an average target ARPU in the range of $15 to 20 per month.
Source: Reliance Jio
So the first two years for Jio have been all about acquiring hundreds of millions of key 4G LTE subcribers and creating stickiness with its attractive pricing and value-driven ecosystem offerings to ensure minimal churn.
This year and next, it's rolling out GigaFiber and connecting tens of millions of premises to fiber and unlocking a number of monetization strategies from content (TV) to voice to internet and smart home. Further, this fiber rollout will also support its 5G network strategy which it aims to start trialing at the end of 2019.
Along with its FTTH rollout, Jio will begin to roll out its NB-IoT network in the first half of 2019 to scale the 4G LTE spectrum and network. Jio will look to capitalize on the massive digital transformation opportunities across millions of small, medium and large enterprises as well as the government’s smart city initiatives.
Further, since Jio also owns a massive physical retail operation in the form of Reliance Retail, it also announced the launch of a hybrid digital online-to-offline marketplace platform extending and integrating Reliance Retail’s physical marketplace into Jio Infocomm. With this platform, Reliance aims to connect and empower small to large sellers to not lose out on the digital commerce boom transforming Reliance Retail into a two-sided marketplace.
The access to massive usage and big data generated from hundreds of millions of users, devices, premises, businesses and things is going to be the key to drive Jio’s core business model of cross-selling content, services, advertisements or first-party hardware and have the lion's share of its customers’ digital lives. This is what many digitally reformed operators and successful platform vendors such as Google, Tencent, Alibaba or Facebook are looking to build. In the end, it's all about building a massive digital platform to monetize the base with ads, content and services.
Jio’s mass-market execution of its offerings at scale is a huge case study for operators globally who are struggling to compete in this massive digital era and are relegated to dumb pipes. Further, some operators which are looking to transform to a platform model but are unable to leverage the vertical acquisitions could also take a leaf out of Jio’s playbook.
Having said that, while promising, Jio has a long way to go and challenges galore to ensure greater network QoS and consistent high-quality engaging ecosystem offerings with an attractive value proposition. This will have to be further backed with clever tiered and bundled pricing while keeping an eye on competition to extract maximum value across different customer segments to maximize its top and bottom lines.
Also, at some point in the next five years, we will also see Reliance Jio expanding beyond Indian shores to achieve global scale and fame, but that would warrant a completely new strategy. It will be interesting to see how that will turn out.
Neil Shah is a sought-after industry analyst with a wide spectrum of rich multifunctional experience who is frequently quoted in media and has speaking gigs at multiple events. He is a knowledgeable, adept, and accomplished strategist advising C-level executives in the telecom and tech domains. In the last 14 years, he has offered expert strategic advice that has been highly regarded across different industries, especially in telecom. Prior to Counterpoint, which he co-founded in 2013, he worked at Strategy Analytics as a senior analyst (telecom). He also had an opportunity to work with Philips Electronics in multiple roles. He is also an IEEE Certified Wireless Professional and a Master of Science (Telecommunications) from the University of Maryland, College Park, USA.
"Industry Voices" are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.