Telecom in India is a brutal, expensive business. For three reasons.
- First you need to build towers across the length and breadth of an unforgiving landscape.
- Then you need to buy spectrum—among the most expensive anywhere in the world.
- Finally, to make your money back, you need to figure out a way to get millions of Indians, a country with a nominal per capita income that’s twice the price of an iPhone 11 Pro, to buy phones.
To succeed, you need a combination of enormous capital, overarching political influence and a willingness to grind it out for the long-term.
So, in 2016, Mukesh Ambani, India’s richest man entered the market with Reliance Jio. To signal his intent, Jio launched with absurd offers. You want a phone? Take it for free. Outgoing calls? Free. Data prices? Next to nothing. Several of these were guaranteed to be free for life.
The market responded. Jio just exploded. Customers migrated to Jio from other networks in droves. The incumbents protested—they claimed the pricing was predatory, that this wasn’t fair, and in order to compete, dropped their prices as well. This made India the country with the cheapest mobile data in the world.
But our story isn’t really about Jio.
It’s about India’s telecom regulator, Telecom Regulatory Authority of India (Trai), and the concessions it made to Jio.
And how it’s finally realising, perhaps too late, that things need to be reined in.
Reliance Jio’s entry to the telecom market was fairly controversial. In the 2010 spectrum auction, when incumbents like Airtel and Vodafone were locked in a bidding war for 2G spectrum, a small firm called Infotel Limited successfully bid for rights to broadband across India by paying 5,000 times its net worth.
Infotel was a front for Reliance. And one day after it bid and won the license, it was acquired by Reliance. As The Caravan reported in their stunning story titled ‘How Reliance Jio is monopolising the telecom sector’,
“Mukesh Ambani established his position within the telecom industry by acquiring a small, obscure firm that had won an auction for national wireless spectrum one day earlier. To win, the firm bid roughly a hundred times what it was worth. According to the spectrum licence, the firm was only permitted to provide internet service. But three years later, the government allowed that firm, by then renamed Jio, to upgrade to a “full mobility” licence and offer every kind of cellular service for a fraction of what its full-mobility licences should have cost.”
The Comptroller and Auditor General of India, in a draft report to the Department of Telecom, suggested that the spectrum allocation be cancelled, accused Jio of rigging the auction, and estimated that Reliance Jio gained an unfair advantage of approximately Rs 22,842 crore ($3.3 Bn).
Not everyone agreed. Not Reliance.
But especially, not Trai.
Here’s a question.
How many customers did Reliance Jio have the day before it officially launched?
If you said zero. You’d be wrong. The answer is close to 2 million subscribers.
Just before launch, Reliance Jio claimed that it was running a ‘test trial’ – to understand how its service worked, iron out kinks, etc. And because the regulations were helpfully opaque about the limitations on a test trial, Jio went all-out. Typically, test trials are for a period of 90 days. Jio ran it for nearly three times as long.
The current regulations of the Telecom Regulatory Authority of India are silent on the scope of trials that can be undertaken by a new entrant in the industry. The Reliance Jio test phase is a full-fledged commercial launch in the garb of testing, says Rajan Mathews, Director General Cellular Operators Association of India in an interview with BloombergQuint.
Jio refutes the charge and accuses the COAI of favouring the incumbents.
Now is where it gets fun.
Because we get into something called Points of Interconnect (POI).
A point of interconnect is where two different networks are physically connected to each other. Say between Airtel and Jio. Or Vodafone and Airtel. Points of Interconnect are what ensure that calls made by one operator’s customer end up reaching another operator’s.
I could go on, but quite honestly, Rohin did a fantastic story called ‘The Interconnect Wars’ back in 2016, and because he’s my boss, I’m going to try to impress him by reprinting what he wrote back then.
Telecom regulators around the world, including TRAI in India, pay special attention to POIs because of their criticality to telecom networks and competition.
…Jio’s Achilles Heel was the fact that its customers still need to make voice calls. And those calls need to land on the incumbent’s voice-based networks.
Which require POIs.
As per law, 0.5% are the number of call drops that are tolerable on POIs. But as Jio started adding more and more users to its network in what it called a “test” phase, its call failures started climbing to anywhere between 50-80% for calls made to the three largest incumbent operators.
And thus began an elaborate, high-stakes game of who-blinks-first between Jio and the incumbents, with regulations being the weapon of choice.
When Jio started complaining earlier this year that it didn’t have enough POIs for its users to make calls to incumbent networks, the incumbents said Jio was only conducting tests. So why did it need so many POIs? They said they weren’t obliged to provide POIs en-masse to any non-commercial network.
As call failures climbed on Jio’s network, it went and complained to Trai, claiming it was being held back by these incumbents, and that this was anti-competitive.
Trai looked at this, and agreed.
It recommended a fine of Rs 3,050 crore ($458 million) on Airtel, Idea and Vodafone.
There’s another aspect to Points of Interconnect. And that’s a financial transaction. If you make a call from one operator to another, the first operator has to pay the second an additional charge for every minute for every call. This is set by Trai.
This is called Interconnect Usage Charge (IUC).
This is important.
Fundamentally, it’s a sound idea. It’s supposed to compensate the receiving operator for the infrastructure setup and POIs needed to be maintained to receive a call from another operator. Before Jio came along, this wasn’t a big deal because the market was symmetric and whatever big players paid one another largely evened out.
But then Jio came along and said that all outgoing calls were free. For life.
And look what happened.
This is the ratio of incoming and outgoing calls for Airtel.