Reliance Jio Infocomm is a grand experiment in extreme capitalism; an experiment where a company, backed by the balance sheet and cash flow strength of the parent’s Oil & Gas business, has unleashed what we call brute force of capital with business strategy which can draw parallels with the operations in Silicon Valley.
Jio’s disruption in the 4G LTE Space has caused #2 (Vodafone) and #3 (Idea) players to consider and announce a merger (in-principle agreement announced; not consummated yet) we do not see this as these players displaying signs of weakness, though. At some level, all that the #2 and #3 players have done is used their “equity capital” to combat the brute force of Jio’s Cash. Jio used parent company Cash to create a massively large level of LTE capacity and through disruptive-as-it-gets pricing made it a game of heavy volumes; this made it imperative for the incumbents to act big. Vodafone and Idea could have each deployed similar “cash capital” of their own but instead decided to deploy their “equity capital” instead and if the merger goes through, would each end up being part-owners of a business that can compete well with Jio.
For the first time, at least in the past eleven years that your scribe has covered the space, the regulator has intervened on pricing by ‘advising’ Jio to discontinue its summer surprise offer. That this move doesn’t make much impact is irrelevant here.
Is the Indian Telecom Regulator TRAI Biased ?
The bigger question is whether this move was driven by the sharp decline in recurring revenues from the sector for the exchequer (Government in the form of service tax, license fees and spectrum usage charges). Why did TRAI intervene now and why not earlier? Jio’s FREE offerings have been around since Sep, 2016. Jio’s press release and media reports on the issue shed no light on the rationale of the timing of the TRAI move.
The Ad-hoc nature of regulatory interventions can never be good for the health of an industry. In a free market, regulators’ job, among other things, is to ensure healthy competition and check predatory pricing – through well defined regulations and not ad-hoc interventions.