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Reliance Jio's Business Model: How Will Jio Make Money With Its 'Crazy' Plans?

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Reliance Jio's Business Model: How Will Jio Make Money With Its 'Crazy' Plans?

By Kshitij Salgunan | Updated: 6 October 2016 17:25 IST

Highlights

Most users may end up spending about the same per month
What you get for your money will improve though
Jio could make more per customer than other telcos

Reliance Jio's business model is really simple - most of you are going to pay the same or probably more money to Jio compared to your current network provider. After reading this answer, you will realize what a clever businessman Mukesh Ambani is.

I have been following the news about Reliance Jio since many years, and have written multiple articles about Jio in the past many months.

(Also see: Reliance Jio Launch Today: Here's Everything You Need to Know)

Why Mukesh Ambani wants to enter networking field so badly?
This story requires us to know why Mukesh Ambani is investing so much in yet another telecom company especially when there is already another company named Reliance Communications. In 2002, when Dhirubhai Ambani died, there were some major ownership issues between his two sons - Anil Ambani and Mukesh Ambani. After some public feud between both the brothers for the control of Reliance empire, their mother intervened and split Reliance into two parts in 2005. Anil Ambani got telecom, power, entertainment and financial services business while Mukesh Ambani received Reliance Industries and IPCL.

Although Anil Ambani got the Reliance Communications, it was Mukesh Ambani who started it and revolutionized the Indian mobile industry by reducing the call rates in the early 2000s, which made mobile phones affordable to Indians. It was his baby all the way, while Anil Ambani was not even having a seat in its board of directors.

(Also see: List of VoLTE Phones That Will Work on the Reliance Jio Network)

That is not all. To prevent Mukesh Ambani from making another telecom company and competing with Reliance Communications, they had inserted a non-compete clause in the agreement.

In 2010, as soon as the non-compete agreement was scrapped, Mukesh Ambani bought 96 percent stake in Infotel Broadband which had won 4G spectrum in all sectors in India. Later they renamed it to Jio, and started building fiber optic network around the country.

Now, if you do not know much about Jio, then I recommend to read one of my previous answers. It will brief you about how awesome their network is. How likely is that Reliance Jio 4G will revolutionize the internet market in India?

(Also see: How and Where to Get Reliance Jio SIM Card)

This is not just about personal rivalry. With his experience in starting up Reliance communications, Mukesh Ambani knows that existing network providers are not good enough and that he can easily compete with them and win. Telecom is also a very lucrative business. It is like he gets to control Internet/ communications in India.

Jio’s business model
Everything Jio have done till now is intended at making money. Their tariff plans may look unbelievably awesome, but they will make more money by giving free voice calls than what the other companies make by charging you for it!

In India, the monthly average revenue per user (ARPU) the current network providers get is around Rs. 150 per month. That is the money they get on average from each user. If you spend over Rs250 per month, you are considered a high value customer.

Look at this tariff plan.

(Editor's note: Since this post was published, Jio was updated its plans to offer JioNet access and unlimited night data with Rs. 149 plan as well, though that doesn't change facts of this analysis.)

Which plan would you choose? If you are a voice-only kind of person, then you would be okay with the Rs. 149 per 28 days plan, as you will get free unlimited voice calls. But, even though you are not explicitly paying for voice, you are already paying over Rs. 150 per month, thus their ARPU will by default be as good as the current players.

If you are someone who uses over Rs. 150 worth of voice calls every month then it is a totally awesome plan for you. But, my point is that other telecom companies make about Rs. 150 per month on average from each user by charging for voice, SMS, data and roaming. Jio will be making the same/more amount of money on average from each user even after providing SMS, roaming and voice calls for free, by just pricing things differently.

(Also see: How to Switch to Reliance Jio and Keep Your Current Number)

Now, if you are a moderately data using person, which plan would you choose? Did you see that there is no plan in-between the Rs. 149 and Rs. 499 plans? This is basically a psychological trick to get you into the Rs. 499 plan. Many people will compare it with the smaller plan and see that you are getting Unlimited 4G night data and choose at least the 499 plan.

They do have some smaller plans at Rs 19, 199 and 299, but these plans do not really offer any more value than their main plans as they have even less validity. Also, it offers less data per rupee. For example the 299 plan only offers 21 day validity and 2GB data. This may be adequate for many people, but if you ever exceed the 2GB limit, then you will have to purchase ‘add-on packs’ and these add-on pack will have the validity of the main pack. So, if you recharge on day 20 of this plan, then you will get only one day validity for the add-on. For practical purposes, you will be spending more for lesser value through these packs. The Rs. 19 pack maybe useful for those who want to use some Internet and voice calling once in a while.

Now, again see that if you want to really use more than 4GB of 4G, then you have to spend double and move to the 999 plan. Did you notice that there is nothing in-between?

Also, notice that all these plans are for 28 days which can easily be perceived as ‘a month’ by most people. If we divide the number of days in a year with 28, we will realize that we are paying for 13 ‘billable months’ in an year. (365/28=13.03)

(Also see: All of Reliance Jio's Prepaid Plans)

What does 1GB cost?
If we exclude the unlimited night data and the Wi-Fi data which many of us may not have access to, then the price per GB of these plans will be

0.3GB for Rs149 = ~Rs 497/GB (Will anyone choose this for data?)
4GB for Rs 499 = ~Rs 125/GB
10GB for Rs 999= ~Rs 100/GB
20GB for Rs 1499= ~Rs75/GB
35GB for Rs 2499= ~Rs71/GB
60GB for Rs3999= ~Rs66/GB
75GB for Rs 4999= ~Rs66/GB

Did you see that even their highest plans doesn’t go as low as their advertised Rs 50/GB rate. Jio came up with this Rs. 50/ GB rate by adding the Wi-Fi access you are getting, but I excluded it because it is not feasible for most people to utilize this as Wi-Fi hotspots are not available everywhere. It would be useful for you if there is a Wi-Fi hotspot near your house, at your work-place or your college.

(Also see: What You Need to Know to About Reliance Jio's Wi-Fi Network)

How can they provide unlimited night data?
Once you have built an entire network infrastructure, it really doesn't cost anything for the network provider to give you Internet data. I have explained this in the form of a story in one of my other answers – What is the cost of the Internet? How much extra are we paying?

The reason why most Internet providers limit your data is basically because they do not have enough bandwidth to handle so much data. In the case of Jio, they have already laid an awesome fibre optic network which is designed to even handle the 5G and 6G. So, they do not have much of the data bandwidth problem.

Other telecom companies were primarily made to handle voice calls and they have limited data bandwidth. Also, other companies do not own nationwide fibre network, so they have to pay to use the fibre network of other companies. This is the reason other companies don’t usually provide unlimited plans.

Jio currently have the ability to provide truly unlimited data plans, but they will not do so, because that will decrease their profits. They have already decreased prices on average by 50 percent. This means people will anyway be happy to use their services. If they provide more GBs in the lower end plans, then lesser people will buy their higher plans. So, currently their pricing is optimally placed to increase their profit. When other companies reduce their prices, it is likely that Jio will also further reduce their prices.

And, the unlimited night usage is only valid for hours in-between 2AM and 5AM.

(Also see: Reliance Jio Has 4GB Data Limit - and Other Fine Print You Should Know)

How can they provide unlimited free voice calls?
Again, Jio has an all IP network, so all voice calls will go through the Internet just like Skype or WhatsApp. There is not really any point in charging for voice anymore. It is an outdated system and there shouldn’t really be any surprise in why Jio totally abandoned it.

If hypothetically, Jio had tariff for voice calls, then some company similar to WhatsApp would have launched an app through which you can do free voice call over the Internet (in fact WhatsApp itself has a voice-call option). Once everyone has a good Internet connection, people would anyway use such services to make their calls.

How Jio makes money with LYF phones?
Many of you may be knowing about the LYF phones. Few months ago, purchasing these phones were the only way you could get access to a Jio SIM Card to get their their free unlimited preview offer. Did you ever wonder why they have so many versions of these phones?

Nearly all of their phones have very low specs compared to the competition at the price point they sell. The only reason why people bought their phones were because of the unlimited Internet+voice calls preview offer.

(Also see: Reliance JioFi - How to Get Started With Jio's 4G LTE Hotspot)

This was a very clever move by Jio. The reason why there are so many versions of these phones is because of this business model:

Jio would go to China and then buy previous generation unsold 4G phones for dirt cheap prices in bulk. No one wants to buy these phones, so obviously the manufactures will happily sell it for a very low price. (This is oversimplification, they really do not have to buy old phones, instead they need to just choose a manufacturer who is ready to build them phones with whatever previous generation components are cheaply available in the market.)
Then it is re-labeled and sold in India. This is how they have several phones with totally different specs.
A totally outdated phone which no one would otherwise buy is coupled with Jio preview offer and now everyone wants to buy it just for the Jio offer.
Jio can now sell these phones and make profit. Plus, they get to test their network and solve the bugs. Plus, they can venture out into the mobile device market.

Brilliant idea, isn’t it?

(Also see: Reliance Jio Is Doomed to Repeat 2002 if It Can't Improve This One Thing)

The real money is in Jio apps
Many people may consider their apps to be bloatware and don’t even install it. I also thought of it as a bloatware when I first heard of it. But, when I tested them out, I saw real potential in them.

JioPlay: This has the potential to become a TV channel company. My prediction is that Jio will soon release something like Google Chromecast to provide this service directly to TVs. The ability to watch Live TV channels on smartphones is also a cool idea, especially in India. This may become the most used app in rural areas too.
JioOnDemand: This has the potential to become the Netflix of India. Imagine if those who currently pirate movies had an option to get those movies in HD quality legally for nearly free. It can benefit both the users and the producers.
JioBeats: Legal music. It has the potential to become Spotify of India.
JioMags: Most popular magazines in eBook format. My cousin who reads tech magazines on a regular basis loved it.

You get the point? They can make any type of app in the future and dominate that category with minimal efforts.

They are currently giving these apps for free till 2018. But, that is done so that they can get maximum users to get addicted to these apps. Then they can start subscription charges for these apps. Instead of paying for your TV service or Movie-DVD or Magazines, Jio wants you to pay them.

Apart from that, these apps are locked to Jio network. So, a person using any other internet service won’t be able to use it. Thus, this will force other people into joining Jio. Currently, only Airtel is capable of properly competing with Jio in the 4G market, but they too may not be able to release such apps on time.

(Also see: All of Reliance Jio's Postpaid Plans)

Will Jio reduce my bills?
Mostly, yes.

If you are someone who uses more than Rs. 150 worth of voice calls every month, then you should see huge reduction in bills.

If you are someone who uses lot of 3G/4G data, then you should see over 50 percent reduction in your bills, provided that you do not increase your data usage. Also, you will get superior 4G network coverage with better speeds. Also, 3 hours night unlimited, Wi-Fi hotspot access, free voice-calls, free SMS, no-roaming charges, free access to live-tv and other apps are an awesome bonus. It is really a good deal.

But you will likely spend the same or more
If you are someone who uses 5GB of data every month, and you were currently spending Rs. 1,000 per month with the current providers, you will be happy that you can get same amount of data for Rs. 500.

But, you are likely to spend the same amount of money over the time and consume 10GB of data for Rs. 1,000, instead. This is because 4G speeds are awesome and now there are many more ways to spend the data. And, since you have the budget for it, you are likely to spend more.

So, even though you are getting much more value than the current operator, Jio can still make the same/ better revenue. This may not be applicable to everyone, but may happen to most people.

Is this good?
Yes, we need companies like Reliance to make such bold moves and invest in India. This is good for everyone. It is a win-win situation. It will increase the progress rate in India and will improve our quality of life. It will also give much needed jobs to millions of people.

Their LYF branded phones are also some of the cheapest 4G phones in the world. Although it have low specs, it would bring 4G to the homes of many people.

Also, we absolutely need competition in this stagnated telecom industry which is currently dominated by players who may have secretly made agreements with each other to not compete on the basis of price. Why do you think Idea, Airtel and Vodafone have similar looking pricing which charges Rs. 250 for one GB data?

If you need to know how awesome their network infrastructure is, then I really suggest you read this answer of mine. It is totally relevant and useful here. How likely is that Reliance Jio 4G will revolutionize the internet market in India?

Conclusion
By just making their tariff plan in such a way that most people interested in 4G have to pay over Rs. 500 per month, Jio will be making way more money than the current players. Most of the high value customers of other players will instantly port to Jio, and they may be able to achieve a huge market share in next couple of years.

You, as a customer will get 2x to 3x more value for your money, yet Jio will make make as much profit as existing telecoms by pricing things differently.

When their apps, devices, and fiber services are added up, they are here here to win multiple business verticals. And, at current stage, they are almost unstoppable.

This post was first published on Quora by Kshitij Salgunan and has been republished with his permission. He is an Indian Internet activist and the co-founder of PhotoTheme.

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