Reliance Jio has been boasting off a soaring market share within a few months of its inception – thanks to jaw-dropping cheap tariff plans. However, following TRAI’s new set of rules, the strategy of this Ambani-led firm may hit straight stonewall!
Following the plan’s inception since February 2018, the novel regulation will inflict the penalty on telecom players for their ‘undercutting’ tactics and strategies that appear ‘predatory’ in order to woo customers away from existing incumbents.
Predatory Pricing Peering Out, Time and Again!
Talking all about meats and potatoes of this undercutting strategy, ‘predatory pricing‘ tantamounts to lowering or slashing down prices of services with the main motive of acquiring a bigger consumer base.
According to TRAI, any city that is home to Reliance Jio’s 30 percent market share or more than that, then that company will be prohibited from lowering down recharge plans further! This means that the company will be prohibited from cutting tariff plans to unreasonably low amounts to surpass rival players.
Given a country like India, lowering prices is bound to work considering that Reliance Jio can also reach those in rural areas owing to its attractive pricing. There’s no doubt that Jio has been wooing customers following its recharge plans that offer some of the cheapest services. However, by slashing its plans too low may now be the reason why Jio has been deep down in the trouble pit!
The trouble pit is as deep as pricey! If Reliance Jio is found at fault for this particular reason, then a steep penalty of INR 50 Lakh (US$75,000) per circle will be enforced on the company. This TRAI regulation is new to some extent since it was framed in February.
Things might not be all Rosy for Jio!
In days gone by, the Ambani-led telecom company was merely an entrant in the telecom space while Idea Cellular, Airtel, Vodafone and other such incumbents where enjoying bigger scoops from the metaphorical market pie. However, when Reliance Jio resorted to tactics where it made plans extremely affordable, the other players were all jaded and drooping in the foray to catch up with Reliance, but at a hefty price that almost dented their consumer base.
From mere 1.52% market share in September 2016 to capture 20.5% market in August 2018, the meteoric rise of Reliance Jio is the talk of the town nowadays. From nowhere to capturing one-fifth of the telecom subscriber base in just two years depicts the intensity of price war Reliance Jio has trigged and fueled it periodically.
Additionally, while the ‘undercutting’ plans have benefited customers, it’s also led to a steep decline in the operational profits, making the industry less viable.
The reason behind Jio’s such far-off reach from TRAI regulations, and how it has still managed to avoid this is that it did not have 30 per cent or more market share. And what appeared to be fat of the land, is that other incumbents like Airtel and Vodafone did. This is perhaps the reason why the tariff plans of Jio has been seemingly lower than it’s rival Vodafone and Airtel.
As per TRAI’s regulation, the variable cost can be estimated after deducting fixed cost and share of fixed overheads of the company from the total cost that can be tallied for a specific period.
Now the question that revolves around the Telecom operation space in India, since Reliance’s master move to woo consumers has been cut short by the regulation, the telco is surely going to have a rough time competing. Again, this lays another scene unfolded on the table, that with restrictions being imposed now, Reliance Jio is likely to adopt variable strategies to attract more subscribers.
Given that there is a chance to increase the cost of its tariff, it’s yet to be seen how Jio maintains the growth of its subscribers base.