1. Entry of Reliance Jio is the beginning of a new phase of data services

Entry of Reliance Jio is the beginning of a new phase of data services

The entry of RJio is the end of the beginning of telecom diffusion in the country, and the beginning of a new phase of data services

By: and | Published: September 14, 2016 6:11 AM
The entry of RJio is the end of the beginning of telecom diffusion in the country, and the beginning of a new phase of data services The entry of RJio is the end of the beginning of telecom diffusion in the country, and the beginning of a new phase of data services

So far the game has unfolded as per the script. While the powerful incumbent telecom operators gear up to retain their large subscriber base, the new entrant Reliance Jio (RJio) has made its intentions clear with rock bottom prices, free voice calls, and full service provisioning comprising of bundled services, applications, content, and devices. There is wide speculation that the second coming of Mukesh Ambani will be as disruptive as Reliance’s first foray in 2001. All that remains to be seen is whether there exist any opportunities for regulatory arbitrage that the incumbents or the new entrant can leverage and the challenges before the regulators and policymakers as we usher into a phase of severe competition in mobile broadband market.

First, the ambiguous and evolving clauses in the license conditions need attention. In 2001, Reliance Infocomm entered the mobile telecom market due to a loophole in basic service provider license that allowed licensees to use radio spectrum for the provisioning of wireless access services within the short distance calling area, without any additional entry fee. Leveraging technology as a differentiating factor, Reliance Infocomm was able to convince the policy makers of the benefit of providing full mobility at higher spectral efficiencies using Code Division Multiple Access (CDMA) technology operating in the 800 MHz band. In response, the government introduced the Unified Access Service License (UASL) in 2003. Reliance migrated to the UASL after paying a differential fee and continued to provide CDMA wireless services. In 2010, in a similar manner, RJio acquired (through Infotel) the not-so-widely used 2300 MHz at three-fourth the price of 3G spectrum to provide advanced 4G LTE services. This also subjected RJio to a low payout of 1% annual spectrum usage charge as against the much higher levy on all other spectrum bands. In 2014, facilitated by the amendment to the Unified License framework, RJio migrated its BWA license to unified license with access service authorisation that enabled it to provide Voice Over LTE (VoLTE) service. This technology provides superior voice service than the service provided in the 2G and 3G networks of incumbents. Given the current dissatisfaction with the quality of voice calls, this could be an important differentiator in the years ahead.

Next, the implications for net neutrality need to be assessed. All telecom service providers are using the strategy of bundling services and devices, i.e., providing a combination of voice, data, applications and devices While net neutrality regulation is still evolving in the country, Trai’s discriminatory tariff regulation prohibits differentiating prices based on content. If, for example, the data tariffs on applications bundled with the telecom service are different from those on unbundled applications, then it can be treated as discriminatory. If Voice over LTE (VoLTE) calls are provided at zero price whereas Voice Over Internet Protocol (VoIP) calls such as Skype and WhatsApp have different bandwidth usage charges, then it can also be construed as violating net neutrality. However, the clause in the above order is not-applicable for Closed Electronic Communication Network (CECN), providing a possible escape window for service providers. For example, if Airtel apps are not available on the public internet, however, available only to Airtel subscribers, then it might satisfy conditions of CECN and Airtel, may avoid violating rules of net neutrality.

Third, the impact of vertical integration on competition needs to be analysed. All access providers are going beyond arms’ length dealing and entering into agreements with content providers, application developers and device manufacturers. This is also true of some of the major internet companies, such as Google and Facebook. At some stage, the competition regulator needs to look at the issue of vertical integration and create a ring fence based on technological and economic realities of the internet.

Fourth, is the issue of pricing below cost. With voice services quickly becoming commoditised, an entrant can be justified in making voice calling free. However, future entrants may not be able to survive in a market where pricing is below average cost.

Fifth, the all-important issue of interconnection between networks call for decisive action to balance the goals of competition and investment incentives. Economic theory, typically, assumes a balanced calling pattern across networks. That is, minutes of usage are distributed between networks in proportion to their size. Under this assumption, there would be no interconnection charges due from any operator. For small operators, each subscriber will make a large proportion of off-net calls; however, the total number of such subscribers would be low. For large operators, each subscriber would make a low proportion of off-net calls; however, the total number of subscribers would be high. In the net, these two effects would exactly cancel out resulting in the same number of terminating call minutes of every network with respect to the others. However, with RJio making voice calls free, huge outflow of calls are expected from RJio network to incumbents’ networks. Lower termination charges as proposed by TRAI in its recent consultation paper will benefit the new entrant. While support for new entry is welcome, Reliance Jio, unlike a typical entrant, has vast financial resources at its disposal. How does the regulator handle this?

In terms of total spectrum holding, RJio holds an average of 2×16 MHz per License Service Area, second only to Bharti Airtel, all of which is liberalised, enabling it to provide 4G services. Augmented by sharing arrangements with Reliance Communications in the 800 MHz band (liberalised after RCom paid R5,383 crore in January 2016), RJio has enough spectrum capacity. The under-utilised, 800 MHz, can be used by RJio to provide 4G LTE services. In fact, all of RCOM’s existing 20 million CDMA subscribers can be migrated to RJio’s LTE services thus providing a captive user base. In such conditions, how will the regulator assess market power?

The entry of Reliance Jio is the end of the beginning of telecom diffusion in the country, and the beginning of a new phase of data services. It is indeed an onerous task for regulators and policymakers to respond to these new challenges.

Sridhar is a professor at IIIT-B and Prasad is a professor at MDI. Views are personal

  1. M
    Mohammad Yunus
    Oct 10, 2016 at 6:25 am
    JIO did boast of it's largest LTE spectrum but it is mere theoretical umption. Fact is that LTE bands are not spectrum efficient. CDMA 800 Mhz was ignored by Anil Ambani and they never tried to shape their CDMA network. Even after acquiring large 4G spectrum, the top winners will be Airtel, Idea and Vodafone. Reliance's fate is on the downside after the force close of CDMA service. They will further kill the goodwill of it's users by shutting down MTS network.
    Reply
  2. M
    Mohammad Yunus
    Oct 10, 2016 at 8:58 am
    MTS network closing down. Users port to Tata Photon and enjoy EvDo Rev B.
    Reply
  3. Z
    zulkharnine
    Sep 29, 2016 at 3:40 pm
    RJIO ,has taken a good step for younger generation.
    Reply

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