A QUICK OVERVIEW ABOUT THE TELECOM INDUSTRY AND THE DISRUPTIVE ENTRY OF JIO WHICH CHANGED THE ENTIRE DEMOGRAPHICS OF THE INDUSTRY.
Introduction to Telecom Industry:
Living in a world where each move in the game of our life is determined by the communications we receive, Telecom Industry plays a vital role in shaping our information-centric world. But what sets this industry apart is that there is “no physical product” which is made and sold to the consumers.
The Indian telecom industry is the second largest in the world in terms of market size and the number of subscribers. To express this magnitude more quantitatively, the size of India’s telephone subscriber base was 1,059m subscribers as of March 2016 (population of India-1340 milion).
More interestingly, it is estimated that the telecom services market is likely to grow at an aggressive CAGR of 10.3% and is poised to reach $103.9bn by 2020. The top 5 companies in the industry command a total market share of 97.7%.
Needless to say, the industry became more consolidated due to several key drivers, including hyper-competition that led to high pressure on profitability, relaxed spectrum trading and sharing guidelines, as well as favorable merger and acquisition (M&A) policy.
Entry of JIO:
The disruptive entry of Jio with all the guns blazing in September 2016, led to a a huge change in the functioning of the telecom industry. While the voice services (Calls, SMS, etc.) amounted to 65% of the total revenue in the pre JIO era,it’s been vastly reduced to about 13.5% of the total revenue with the revenues being totally dependent on the Data Consumption charges (which is greatly increasing due to the exponential increase in smartphones and decreasing data tariffs)
The predatory pricing followed by Jio to obtain a good market share, also led to pressures on Profits in an already hyper-competitive market. This strategy allowed Jio to partly avoid the competition with existing players by offering the voice calls for free and concentrating on the internet data plan segment. This move was particularly effective as the sector was crowded with competitors who were busy competing in the paid voice call segments.
“Given the strength of RIL’s balance sheet, RIL’s ability to fund losses is also higher than its peers. Jio’s primary target is likely raising revenue market share as aggressively as possible” CREDIT SUISSE REPORT PUBLISHED ON APRIL 21, 2017,
What has happened since the Entry of JIO: An Analysis
A small market share analysis of Indian Telecom Industry by service providers in August 2018 vs. Aug 2016 clearly tells us a few things:
The market is clearly moving towards an oligopolistic market scenario
To be regulated by TRAI to ensure free market in the long run
Jio has managed to exponentially onboard customers to its platform in such a short span of time, and is one of the leaders in the market right now. (~20.5%) due to its innovative pricing (data-only) and its deep pockets filled by Reliance Industries Ltd. (RIL).
After a minor dip in their market share in 2017, big Telecom companies like Airtel, Vodafone and Idea are regaining back their traction by retaliating to Jio’s pricing strategies by various methods like retaliatory pricing plans, innovative marketing schemes and eventually led to one of the biggest mergers in the Telecom industry-The merger of Vodafone India and Idea Cellular Limited (Idea), the second and third largest telecom players in the Indian telecom market, respectively, in terms of the number of subscribers.
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