Can Reliance Jio 4G-LTE Pricing be Irrational to Disrupt Market ?

Reliance jIo Pricing RationalBillions of dollars of capital already employed with another few perhaps waiting in the wings to be deployed in the upcoming mega battle for market share—is there even an argument that Reliance Jio Infocomm would not destroy any sense of sanity and value-creation possibility in the Indian telecom industry ?

We believe there is more than an argument, if one were to (rationally) assume that R-Jio intends to have a business case at some point with that ‘some point’ being within a reasonable timeframe. One needs to appreciate that wireless business cases in India to be viewed as a series of 20-year projects given the naked reality of large spectrum renewal. Our expectation of ‘P&L rationality’ from R-Jio ironically flows from the very fact that it has deployed billions of dollars in the business. Large balance sheets need large P&Ls to support a business case and large P&Ls need a certain (large) market size or (improbably) high market shares.

Market share is a zero sum game but value can be a negative sum game; R-Jio’s business case needs a certain absolute revenue base and not a certain market share alone; absolute revenues are a combination of market size and market share and the higher the damage a player’s actions causes to the size of the market, the higher the market share requirements become, and we are no longer in 2008/09 when the last phase of hyper-competition in the Indian telecom market began; the starting point then was super-normal profits and return ratios being earned by the incumbents as well as low balance sheet commitment needed to set up business.

We are not by any means suggesting that R-Jio to be aggressive on pricing, especially data pricing. We fully expect them to be aggressive; we just do not see a “no holds barred” war on the pricing or customer acquisition front. We expect R-Jio to be cognizant of (1) the long-term damage they can inflict on the market context by being irrational, and (2) the challenge of building a viable business case for itself in a heavily damaged market context.

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