Reliance Jio, formerly known as Infotel Broadband Services Private Limited (IBSPL), announced its plans in June 2015 to provide 4G services on a pan-India level using Long Term Evolution (LTE). After a series of delays and beta launches, the firm launched its commercial services on 05 September, 2016.
So what is special about this firm? All companies go through the same process. The answer to this question lies in the way Reliance Jio came into existence and offered never-heard-of tariff levels to its subscribers.
The Broadband Wireless Access (BWA)/4G auction took place in May-June 2010. In this auction, a small and unheard-of company, IBSPL, not only managed to successfully bid for one block in each of the 22 telecom circles for a total of INR 12,847.44 crore (against the net worth of INR 2.49 crore only) but also sold a majority stake to Reliance within a matter of few days post completion of the auction. There were a few allegations regarding the forged bank guarantee and inadequate disclosures, but the matter was not debated in public media in much detail. Moreover, a committee approved the conversion of Internet Service Provider (ISP) licenses to the new Unified Licenses (UL) in February 2013, of which Reliance Jio was the first operator to take advantage. It paid an “entry fee” of INR 15 crore and a “migration fee” of INR 1,658 crore in August 2013 to get the license for providing both voice calls as well as internet services.
Again, what is so special about this? Here, BWA licenses were meant for providing mobile data/ videos only. At the time of spectrum auction, this conversion of licenses to ULs was not in the picture. So, an operator bidding for a BWA license might not take into account the possibility of providing voice calls under the same license. However, if someone had enough confidence that the awarded licenses could be later converted to something like a UL, then he could possibly stand to gain a windfall. Actually, a draft CAG report alleged that Reliance Jio was given “undue benefits” to the tune of INR 22,842 crore by allowing the said conversion (although the final CAG report submitted on 08 May, 2015 omitted any reference to this calculation- one might wonder WHY?). An article: A Call for Review- Supreme Court’s Decision on Reliance Jio published in the Economic & Political Weekly on 11 June, 2016 describes the issue in much detail.
Now, fast forward to 2016. Reliance Jio is offering dirt cheap prices for data packs and free voice calls to its subscribers. One might wonder, if the allegations made by CAG were indeed true, then why can’t these offerings make perfect business sense. All the other operators suffer from a debt laden balance sheet- primarily because of frequent spectrum auctions. Among these handicapped players is a Hulk which can take the risk and lure subscribers away. This Hulk is not leeching off the consumers but simply “passing off” the gains made earlier. So, IS IT WRONG in doing so? One might only wonder.