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Business Comparative Analysis: Reliance Jio v/s Bharti Airtel
WHAT IMPACT RELIANCE JIO CREATED IN THE TELECOM INDUSTRY?
The main driving for telecommunication firms forces for the preservation of digital data are legal and business requirements. It is obvious that these requirements need to be met at all costs, and the importance of digital preservation of data is therefore widely recognized with legal policies and business strategies developed and implemented throughout the organisations.
The business software solutions already in use play an important role for preservation, but are supplemented by additional software packages. However, as legal stipulations generally do not require the telecommunication firms to keep their data for more than ten years, there is smaller interest in preserving digital information for the long term.
What Reliance Jio has done, at great cost, is to move into all those spaces that were either left vacant or were just not visible to incumbents like Bharti Airtel
Through all the fur that’s been flying around ever since Reliance Jio launched its services in September 2016, it is difficult to escape the conclusion that the existing market leader Bharti Airtel was simply not prepared for the ferocity and the intensity of the churn it would trigger.
Reliance Jio’s entry was no surprise. Indeed, the repeated delays in the launch of its services, gave Bharti as well as the other rivals more time to batten down the hatches.
Over the last six years, Reliance had made its intentions quite clear, first acquiring the broadband network needed to roll out 4G services and then buying a pan-India spectrum.
Indeed, Bharti of all companies already had a taste of what a behemoth like Reliance would mean as a competitor.
WHAT IS RELIANCE JIO’S OBJECTIVE to CAPTURE THE MARKET PIE?
Reliance’s objective in 2016, as it was in 2002, is to grow the size of the market exponentially and to make money from the ensuing volumes. In 2002, Reliance Infocomm succeeded in opening up the Indian market by crashing prices all the way from Rs 8 per minute for incoming calls to less than Re1, with incoming calls and value-added services thrown in free.
Within a fortnight of its launch, Infocomm had a million subscribers. Strangely, at that stage, Bharti was a small company lacking in the resources to counter such a capital-intensive battle. But the telecom market of 2017 is vastly different from the one in 2004 that Reliance Industries chairman Mukesh Ambani was forced to quit. In these intervening years, Airtel has been the leading market player with a share of over 30%.
SHARE PRICES INCREASE OR DECREASE?
Companies with high market shares in their industries have actually been more vulnerable than would seem—IBM, Gillette, Eastman Kodak, Procter & Gamble, Xerox, General Motors and Caterpillar are some of the companies which lost big to new entrants.
The classic case is that of Pan American World Airways, popularly known as known as Pan Am, which was the largest international airline for nearly 70 years since it began operations in 1927. HOWEVER, it was hit hard by the deregulation of the US airline industry and its failure to come up with a viable domestic network led to a steep and precipitous fall leading to its final bankruptcy in 1991.
What Reliance Jio has done, at great cost it must be said, is to move into all those spaces that were either left vacant or were just not visible to incumbents. Free voice as a part of a package where a customer is already paying for data, seems in hindsight an obvious facility. What’s more, by plumbing for an all-data strategy, Jio also seems to have read the changing requirements of Indian customers better.
In a statement in February, Ambani claimed India had become the world leader in mobile data usage with Jio users consuming more than 100 crore gigabytes (GB) of data per month. That’s borne out by numbers from market regulator Telecom Regulatory Authority of India (Trai) which shows that the entry of Jio in September 2016 led to a sharp rise in data volumes. Even though that is being attributed to Jio’s free offers, what is clear is the latent appetite for data usage in the country.
While there is no guarantee that Jio’s market share will lead to commensurate profits, given the massive investments it is throwing behind its many free schemes, it has forced Bharti along with other companies into matching offers. The dynamic would have been vastly different had Airtel chosen to make the same offers a year ago when Jio’s position was relatively uncertain.
Now, it is Mukesh Ambani who’s calling the shots, forcing the erstwhile market leader into playing catch-up. Of course, Jio is leveraging the strong balance sheet of its promoter and analysts are right in questioning the viability of such a scorched-earth policy in the long run. But those analyses are based on seeing the market as it is today.
What if the Indian market for data explodes?
*As Happened a decade ago with voice*
Jio’s tariff tactics may end up looking quite smart. In any case, it isn’t the first company to use competitive pricing to gain market share.
One of the most successful examples of the use of pricing against competition came from an incumbent, Frito-Lay. In the1980s, under attack from beer-maker Anheuser-Busch’s newly launched snack foods under the Eagle Brand, Frito-Lay struck back with deep across-the-board price cuts eventually forcing the newcomer to capitulate and in 1996 sell off its plants to Frito-Lay and the Eagle snacks brand name to Procter & Gamble Co.
Although, Bharti Airtel is one of the largest companies in the telecom sector in India and has a big impact on the tele-communication sector, but RIL doubles shareholders’ money every 2.5 years for last 40 years. Recently, RIL adds Rs 17,000 cr to investor wealth as Ambani launches JioPhone Airtel, Idea, RCom fall as RIL unveils JioPhone at effective price of Rs 0.
Reliance is playing on the trump card of gathering the user base by giving free deals to the Indian consumer market with a long term vision of gathering PROFIT MARGIN in the long run. After all, MONEY is ALL WHAT MATTERS in the end.
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