Reliance Jio is the sensation in the present era of telecom sector of India. Customers are in love with Jio, whereas for its rivals, it’s a nightmare. Jio is the company that offered free unlimited 4G connection + free calling + free texting. That’s all at a time when even the 3G network was not fully working on pan India basis. This is initiated by Indian business tycoon Mukesh Ambani, the owner of the Reliance communication. Reliance Jio with its tariff plans made giants corporations like Airtel, Vodafone, idea to bend their knees. Companies which were providing 3g data with no benefit of calling and SMS at 1gb per ₹ 200-300 now forced to offer unlimited calling at Rs. 199 with free calling. Earlier, unlimited calling across India was about ₹ 500-700 in which they had pre-conditions too.
So you can see how Jio is severely hurting profits of these Telcom giants.
What I believe is Reliance Jio’s Bussiness Model. How is it planning to make the profit?
We have talked about customers and competitors, but now about Jio itself. As we know, there is nothing free in this world, even in exchange for oxygen, we give Carbon dioxide back to the environment. For every debit, there is a credit. For every gain, there is the loss.
So how can someone invest 1.9 lakh crore to give away his products for free? Jio is focussing on long-term gain rather than short-term loss. But how? Let me explain it to you.
Telcom sector is different from the manufacturing sector.
In the telecom industry, there is a one-time investment for infrastructure and then no need for any raw material. Unlike in the manufacturing industry, you have to spend high on infra first; then you need a continuous supply of feedstock.
In the telecom industry, there is no concept of sales return. Whereas in manufacturing, structure materials can be rejected online, after the sale. So for providing your prime service, you only require maintaining your infrastructure.
Reliance Jio, as I said earlier, has made ₹ 1.9 lakh crores of investment. They got the infrastructure for not only 4g but for 6g and 7g as well. Jio enter the market with offensive business technique with the primary motive to make a significant number of customers. And the approach they chose is “Give it away all free.” Jio has about 100 million customers till date and number are still swelling. Jio has made a one-time investment which is the initial requirement, and now it’s up to them from when they want to earn from it. So no Jio has developed a platform, gave everything free of cost for customers, no they got some plans which are too economical as well.
Catch of Telecom revenue and Reliance Jio:
In India, the ARPU (average revenue per user) is around 150. That’s what every service provider was getting till now. Now as per Jio’s Tariffs, if you spend 250 per month, you will be called as “high-value customer.” Data cost nothing to these companies but how much you pay per month does.
Most of the companies, limit your data plan just because they do not have enough bandwidth. In case of Jio, they were laying down fiber optics for so long that they now can even provide 6g service in India. So data bandwidth is not the issue, but how much you spend per month in greed of free data and calling, does matter.
How are they providing free calls when other operators charge it separately??
That’s a fair question. Reliance Jio has an IP Network, and just like WhatsApp, facebook, skype, etc. it’s all voice calls go through its internet pack. Why would he need to charge for it when it’s free even for them. Let us say, Jio had a separate tariff plan for calling. And then some other company would have launched the app through which one can do free calls (Whatsapp, skype doing it already, but In India, slow internet speed was not letting them grow). Once we get good internet speed, we would anyway use these services for calling. SO RELIANCE JIO KILLED ANY COMPETITION BEFORE IT COLD BORN.
They had two option to earn the profit:
Small no. of customers significant benefit. Have a satisfactory number of clients and gain from them by giving them competitive (somewhat less than equals to other telecoms) data and calling plans.
Or Large no. of customers with a small profit. Grab as many customers as you can, Bind them to yourself, and draw benefit gradually.
Reliance Jio has made a one-time investment which is the initial requirement. They gave it all free to customers and made them used to free calling, and data feature. Later they introduced paid data plans which were also very economical and affordable (as compared to others).
Have you ever noticed that Reliance Jio & all other telecom services plans are for 28 days? It may anticipate as an equals to a month, but for them, it means an extra billing period. Yeah, If you divide twenty-eight days by a year, the solution will be 12+1 month. So that’s one first con.
Now Jio has to pay fixed costs as well, like EMI for infrastructure, commissions, salaries, etc. At first, they were drawing it all from the initial capital, but for continuation, they need more funds. So now Reliance introduced a new money making machine called Jio Phone. You just need to pay ₹ 500+1000 for a new Jio Mobile, and it is completely refundable. Such a productive plan, but as I said, there is nothing free in this world except ;))).
Reliance Jio is charging ₹ 1500 for a Cheap build handset which may cost around only ₹ 300. Assembling mobile in ₹ 300 or selling it for ₹ 1500 is a good plan.
But He is giving my money back in three years?
That’s true. But just imagine, will you be able to keep this cheap kind of mobile for three long years? And if you could, would you bother to give it back? Also, Jio will reinvest your money somewhere else and make a huge profit out of it. Now even if 60 % of customers return the phone, he would have made 400-500 % profit than he would have to return. So, in the end, we can say jio in the small run is only a win-win situation. But Reliance had made a full-fledged strategy for long-term only. Jio – where you all operators stopped thinking, I start thinking from there.