Reliance Jio: Which side are you on in (telco) battle of Kurukshetra?
Last week, Mukesh Ambani sounded the clarion call for Reliance Jio to begin the new age telco battle of Kurukshetra, and with great dexterity nominated points of interconnects (PoIs) with other telcos as the first battlefront.
Choice of PoIs is very strategic, as the number of PoIs secured by Jio (or yielded by other telcos to Jio) could ultimately determine the winner of this epic battle. Why are PoIs so important in this battle? Allow us to explain.
If this is indeed the new generational Kurukshetra war, who are the new generation Pandavas and Kauravas, and who is Krishna, and what is his role?
Well, Reliance Jio has donned the role of the Pandavas, with the other telcos being the Kauravas. Krishna’s role is best assigned to an unsuspecting Telecom Regulatory Authority of India (TRAI), or some hidden god particle in the New Delhi bureaucracy.
First, telecom networks are like privately-owned (or toll) roads and it is up to each firm to have sufficient lanes and connections to other roads so that people can travel comfortably and conveniently.
Currently, very few of them (except Reliance Jio) have good voice and data carrying capacity, with little or no call drops, with the majority of them being like the shabby, dilapidated, rugged muddy pathways with so many potholes we call roads in India.
Call disconnects, drop outs, wrong connections, and cross-connections where you hear the chatter of several other connections, and even total outages, are all common. These remind us of the typical traffic jam during peak hours and accidents involving multiple vehicles that we see on our roads in the big cities.
Telcom networks have known about these problems for years, but all of them systematically refused to incur capital expenditure (capex) to modernise their networks and increase capacity.
This neglect continued to happen even when the number of customers and traffic volumes increased drastically. This is very similar to what we see on roads today. While the traffic of both two and four-wheelers has increased on numbers, the roads have remained the same.
Some cities change road names and call them highways, and the telco firms have also engaged in the same deception, though in this case they call them 3G and 4G. When people buy better phones, nothing really changes as everyone has to use the same network.
 |
| To the end customer, Jio will never appear as another telco. (Photo credit: India Today) |
We see this parallel on the roads as well. Whether you have a Tata Nano or a 12-cylinder Ferrari roaring to go at 200km per hour, you will move at a snail’s pace - if you are lucky - during peak hour traffic.
And, the sad thing is that telecom companies actually make more money during peak periods, as the call volume increases!
Second, like private (or toll) roads, telco networks have to be interconnected to enable calls from one network to another - say Vodafone going to Airtel, so that a Vodafone customer can talk to an Airtel customer.
The point at which different networks connect to each other is called PoI, very similar to two sections of private highways between say, Mumbai and Pune, interconnected at a toll booth.
Telco networks charge an interconnect toll of around 14 paisa per minute for allowing, say a Vodafone customer to enter the Airtel network and connect to the Airtel customer. The interconnect rate is bilateral, meaning the same rate applies both ways.
The revenue Telco A collects from Telco B and vice-versa through PoI is the wholesale revenue, and the bigger the customer base, the higher the wholesale revenue.
So while Jio amassed more than 2 million customers even before the launch and is ready to roar down the 80-lane highway of high capacity networks with virtually no traffic jam, it does not help if Jio customers are not permitted to go through the PoI toll booth to connect to customers of Airtel, Vodafone, Idea, Tata DoCoMo and others.
Jio will be happy to pay the interconnect charges per minute on the wholesale level, because it knows that as soon as they become the market leader with “on net free voice calls” (i.e. Jio customer calling other Jio customers at zero rates), Jio will receive more calls to its network,increasing the net wholesale revenue it gets.
Third, interconnects are mandatory, and in this battlefield, securing maximum high capacity PoIs has another distinct advantage which Jio is trying to lock in with the tacit support of TRAI.
In order to provide great sound clarity, Jio has to carry its customers as much as possible on its own network, rather than handing them over at the closest PoI, allowing the other carrier to carry the call on their network.
Imagine if Airtel were to give only one or low capacity PoI each in Chennai and Mumbai, even though this is against regulation. In this case, when Jio customer A from Chennai calls an Airtel customer B in Delhi, Jio will be forced to connect with Airtel’s PoI in Chennai, and then Airtel will “carry” the call all the way to Delhi and connect with Airtel customer B.
Given the difference in network infrastructure, Jio customers will get inferior service on the crowded Airtel road from Chennai to Delhi rather than on the eight-lane Jio road!
Further, Jio will be forced to pay interconnect charge of say 14 paisa per minute plus the carriage or transmission cost of carrying the call from Chennai to Delhi. This is big money, because every day close to a billion people are talking on the phone in India.
If we consider an average call duration of three minutes, that is 3 billion minutes of domestic voice traffic, worth Rs 75 crore (at a sale price of 25 paisa per minute) of revenue per day, on voice minutes sales only.
This does not include data charges and other value added services such as ring tone sales. This also does not include around 4 billion minutes of outgoing/incoming international voice traffic.
Plus, there are other revenues that telcos generate through partnerships with e-commerce and social media players like Amazon and Facebook, and that is not included either.
In summary, securing maximum number of high capacity interconnects with other established telcos in India at multiple points will win the PoI battle for Jio.
With a virtually free network highway waiting, this will enable Jio to offer customers a seamless high speed Ferrari ride on its network, that no other telco in the country can match.
So would Indian customers choose the bullock cart ride for the sake of nostalgia or the Ferrari ride on the superhighways of Jio?
Fourth, to the end customer, Jio will never appear as another telco. Jio is an infotainment, e-commerce and banking service provider, or an adviser to make that favourite pasta with your earpods on, while your wife is still online searching for the recipe!
While other telco firms led by Airtel, Idea and Vodafone et al, who have joined together as a single block (COI, Cellular Association of India), may use their global footprint and try to make us believe they are also offering us 4G superhighways, they fail to mention that it is choked to the tilt and the Ferrari ride we bought could at best be an autorickshaw ride.
Telecom operators in India have miserably failed to embrace innovation and changing needs of customers and transform themselves into solution marketers. They have simply remained as transmission companies pushing plain vanilla voice and data, in their selfish quest for short-term shareholder value and profits.
By doing this they also failed the Indian economy. There are too many administrators eager to manage the status quo in COI groups, and continue to expect that the new generation Indians who want the Ferrari ride on the superhighway will fall in line.
Now you may decide on which side should Krishna be and which side should his army be positioned.