Within a few month’s time, Reliance Jio gained significant market share in many circles owing to its dirt-cheap offerings and extremely affordable JioPhone. With these strategies, the Mukesh Ambani led telco raked in a lot of subscribers in five circles including Himachal Pradesh, Madhya Pradesh, Orissa, Assam and Bihar where it now boasts of owning more than 30% market share. However, things might not be all rosy for Reliance Jio since these circles have been deemed as C-grade meaning that the customers in these circles are considered low paying. Another reason why Reliance Jio remains ahead of other telcos in these circles is that of the massive 4G infrastructure which the telco has deployed, as opposed to other incumbents which have struggled to bring reliable 4G services in these states.
Bumpy Road Ahead for Reliance Jio with Predatory Pricing Rule
Even with such an active user base, Reliance Jio might be in for some trouble since the telco is going to have a hard time further slashing prices even with a low paying customer base. The constraint has been put by the telecom regulatory authority of India (Trai) which issued regulation back in February regarding predatory pricing by telcos. As part of this regulation, the telcos will be slapped with a penalty up to Rs 50 lakh per circle if they resort to predatory pricing techniques, the analysts say.
As per Trai’s definition, predatory pricing will be considered eligible for penalisation in case a telecom operator with more than 30% market share offers services below the average variable cost to gain significant upper hand as compared to the other telcos. Previously, Reliance Jio was merely a new entrant in the telecom scene whereas other incumbents like Idea Cellular, Vodafone and Airtel had a larger share of the pie. However, after Reliance Jio’s extremely affordable plans, the other telcos could only catch up while Jio had already dented their subscriber base.
Reliance Jio Likely to Adopt Different Strategies
Following the strategy of providing free services by Reliance Jio, Trai was forced to define predatory pricing as a reason for penalisation since the other telcos requested the telecom watchdog to intervene in the affairs. As per Trai’s regulation, variable cost is calculated after deducting fixed cost and share of fixed overheads borne by the company from total cost incurred by it for operating a business during the period under question. Now the question remains that as Reliance Jio continues to grow its subscriber base in other circles, the telco is going to have a hard time competing with other telcos since affordably priced offerings have been Reliance Jio’s master move to lure in the consumers. Undoubtedly, if the regulation is to be followed, then Reliance Jio will likely adopt different marketing strategies to bring in more subscribers.
