Business Today

Predatory Telecommunicator

Call charges are not what telecom companies can make money out of
Ashok V. Desai | Print Edition: August 27, 2017
Predatory Telecommunicator

Teledensity reached 88 per cent at the end of 2016. For villages it was 52 per cent - just over half a telephone for every villager. That sounds plausible; one may not see every other villager fishing out a mobile, but it is possible that he carries one. In cities, there are 65 per cent more phones than townsmen. When the phone numbers started outrunning townsmen, there was much incredulity. But, then people were seen carrying a number of phones - one for the boss, one for the boyfriend and one for the maid - so phone multiplicity was recognised as just an Indian foible.

Phone calls do not increase as fast as phones; there are only so many people one wants to talk to. So, call charges are not what telecom companies can make money out of. Motormouths were the first to get phones; operators may find new subscribers, but they will not be talking a lot.

That led to the search for other sources of income - bulk SMSs, Internet, data and so on. They, too, did not come up to scratch; but there was always hope. The second most populous country in the world, the most garrulous people in the world: for Indian telecom market, the sky was the limit. Hope does not turn into profits, but business groups with fat reserves could afford to wait.

Their leader is the Reliance Group. It is India's largest business group. Its revenue is over thrice that of Bharti Airtel, the biggest telecom company; its profits are over seven times Bharti's. That is understandable; competition is greater and margins narrower in telecommunications than in the mix of industries Reliance operates in. But profits imply firepower. No one knows this better than Mukesh Ambani. So his aggressive move is not surprising.

Free voice calls for life on its own network is big news; but it will not bankrupt Jio. The investment in call conveyance has already been made; so the marginal cost of a call is zero, and it is no surprise that the price is being abolished. In a better planned world, the government would have given everyone a free phone and made all voice calls free. The costs being what they are, talking across the country can be made a free, universal service at a small cost. But our government can be relied on to be behind the times - which gives Reliance a chance to be ahead of the times.

Mobile phone companies are upset at Reliance's assault. They regard it, correctly, as predatory pricing. Since they are not charging incoming calls, Jio's avalanche of outgoing calls is all cost and no income for them. They have also tried out a public welfare argument: that they are subsidising villagers, who receive a lot more calls than they make, and will not be able to continue to do so if Jio destroys the operators' profits.

It is not only other operators' profits, it is its own profits that Jio destroys with zero call pricing. But it is not in the business of charity; it is a real, rational business. It has recognised that there is little money in calls, especially for a newcomer; it is focusing on data services, for which it will charge and from which it will expect to make good profits. Its competitors, too, could do that. They may not have the same connections with producers of audio and visual material that Jio expects to be selling; but the media industry in India is large enough to serve them as well. If Jio is beating them at their game, they can try beating it at its game. They have complained to SEBI and to all who would listen about Jio's predation; but predation is not Jio's monopoly. Let predators roam everywhere in telecommunications.

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