Voice of Reliance

Reliance Industries unleashes a full-scale war in the mobile business by blurring the divide between voice and data. But its entry as a harbinger of radical change is sullied by grave questions of regulatory negligence that has stifled competition.

Customers waiting outside one of the stores offering the Reliance Jio SIM card at Banjara Hills in Hyderabad on September 9.

Mukesh Ambani, the chairman, managing director and largest shareholder of the biggest Indian conglomerate, Reliance Industries Ltd, set the cat among the pigeons on September 1 when he announced an audacious foray into mobile phone services. In an address to company shareholders, but which was carried far beyond by live feeds on TV channels, Ambani announced that the company’s subsidiary Reliance Jio Infocomm Ltd would launch its much-delayed mobile services from September 5.

Ambani’s speech can be broadly parsed into three sets. First was the general homilies about how Jio would transform Digital India. The second set of issues pertained to how Jio would enable popular access to data, the new currency of enlightenment and empowerment as he described. The third was his promise to obliterate the distinction between data and voice on his network, what in technical terms has been described as IT convergence and has accelerated over the last decade.

Ambani waxed eloquent on how Jio planned to transform India by enabling cheaper access to data. Data, he said, were the “digital oxygen” and he said Jio’s service would enable India to move from a situation of data shortage to one of data abundance. While commentators have dissected Jio’s data plans and shown them to be not very different from that of its competitors, Ambani’s killer punch to competition was the virtual elimination of the distinction between voice and data traffic on the Jio network.

The key element in Ambani’s announcement was the offer to Jio customers that they would enjoy a lifetime of free calls on its network, a move which clearly unsettled the cosy cartel-like world of Indian mobile operators which has been repeatedly accused of neglecting investments in infrastructure.

Long queues at Reliance outlets were reported from across the country when the service was launched on September 5. Although the Jio SIM was for free, there were reports that customers were being asked to pay Rs.1,000 in Delhi and Rs.350 in Bengaluru. Reports from other parts of the country also indicated brisk sales of the Jio SIM in the black market.

Chaos in the networks

As expected, the battle turned ugly, with Reliance’s competitors desperate to defend their turf at any cost. A day after the announcement, the cosy club of operators, represented by the Cellular Operators Association of India (COAI), started making noises about how providing “interconnect” to a flood of subscribers from the newly launched company could prove difficult. The fact that voice calls were free on the Jio network, and since all calls from the new operator were obviously to other networks, triggered a massive demand for “interconnection” with other networks.

Jio alleged that the incumbent telcos were not providing adequate quantum of Points of Interconnection (PoIs), resulting in its subscribers being unable to reach out to subscribers on other telecom networks. The incumbent telcos countered it by saying that the installing of new PoIs to handle the surge in traffic would involve investments and take time. Although they are obliged to provide PoIs, they argued that the free calling regime initiated by Jio was responsible for the chaotic situation. Bharti Airtel, the operator with the biggest subscriber base, said it planned to increase the number of PoIs available to Jio connections but urged the regulator to use the Interconnection Usage Charge (IUC) as a means of controlling the “asymmetric flow of traffic” caused by one operator choosing not to charge for calls.

Curiously, the industry association functions as a company in which voting rights are distributed according to revenue shares, which implies that although Jio is a member it has no voting rights. “We have zero revenue, so we are crowded out,” Ambani told a daily, referring to the COAI’s structure that effectively shuts out the new operator from having any meaningful say. The COAI, which is primarily controlled by the three main incumbent operators (Bharti Airtel, Vodafone and Idea Cellular) dragged the Telecom Regulatory Authority of India (TRAI) into an ugly fracas when it alleged that the regulator, at the “behest” of Reliance, kept the COAI out of the talks that were held on September 9. The regulator reacted angrily by demanding that the COAI’s director general, Rajan Mathews, apologise for alleging that TRAI had asked him to leave a meeting conducted to discuss interconnect issues. TRAI said Mathews’ allegations were “patently wrong, mischievous and perhaps made with mala fide intention”. The regulator also clarified that interconnection among operators was a “bilateral issue”. TRAI has asked the incumbents to commit to an increase in PoI capacities in order to facilitate interconnection with calls from Jio subscribers. The regulator hopes that the issue would be “settled” in 90 days, by which Jio’s introductory offer is scheduled to expire.

It is evident that neither the regulator nor the government has learnt from past experience. Fourteen years ago, when Reliance launched its first foray into the telecom business—about which Mukesh Ambani talks little now—the regulator watched helplessly as the then incumbents refused to allow interconnection. Their grouse then was that Reliance had made use of a Wireless in Local Loop (WiLL) licence to make a “back-door entry” into full-blown mobile telephony. While it is true that Jio is free to charge within the tariff limits prescribed by TRAI, or not at all as in the current situation, it is evident that the regulator has allowed Jio to create a chaotic situation that threatens to choke networks. It is evident that the regulator ought to have demanded that Jio provide enough time to other operators to set in place systems that can handle the explosive surge in traffic from a single operator.

Social basis of the digital divide

Reliance’s emphasis on data transmission, instead of voice as is the situation now, unleashes a “paradigm shift”, says Prabir Purkayastha who is associated with the Delhi Science Forum and the Free Software Movement of India. Purkayastha observes that Jio appears to have made substantial investments in building the “back-end capability” that can handle the surge in data traffic that Jio’s model rests on. While observing that the quality of Jio’s service would play an important role in how far it is able to progress, he notes that the incumbents have sat on their haunches for too long without making investments in capacity or capability. He also urges separation of issues pertaining to the manner in which Jio acquired the spectrum for its services six years ago from the issues relating to the nature and scope of its operations, especially their impact on the digital ecosystem characterised by convergence of data and voice on a single medium.

Ambani has claimed that Jio has made investments of more than Rs.1.5 lakh crore in enhancing the reach of its network. Significantly, Jio aims to gather a subscriber base of 100 million by 2017, a pace of growth that is unprecedented in the Indian mobile telephony business. Yet, his ambitious targets need to be placed in context. The average revenue per user in India is estimated at about Rs.125-150 per month and, like all averages, it hides the fact that usage levels reflect levels of income. Moreover, the fact of the matter is that voice revenue accounts for almost three-fourths of the revenues of the incumbent operators. This single statistic explains why the incumbents are so jittery about the Jio launch; the free calls on the Jio platform threaten to undermine the mainstay of their current business, which is voice.

If voice is so dominant in the revenue streams of the incumbents, the consumption of data is even more skewed, a point that Ambani chose to highlight before the Jio launch announcement. Addressing a meeting organised by the Federation of Indian Chambers of Commerce and Industry in March 2016, Ambani pointed out that data consumption was merely 0.15 gigabytes per person per annum in India. If this is the level of data consumption, it surely indicates a severely skewed demand for data, no doubt aggravated by the high price that the incumbents are charging for data traffic. Although there is no reliable data on the extent of the skew, according to one estimate, a mere 30 per cent of the subscribers of the incumbent operators account for 70 per cent of the data that travel on their networks. This top end of the subscriber base of the incumbents would thus be the prime pickings that Jio will aim for in the months ahead, even if the incumbents cut tariffs to retain them.

Jio’s offer would appear attractive especially if it is backed by the robust back-end fibre optic network that it claims it has installed, and is likely to draw a significant portion of the cream of the customers that are now on the incumbent operators’ networks. This would happen unless the incumbent operators quickly cut data tariffs to stem the outflow of customers from their networks. But even this may not be enough, given the poor connectivity of their 4G networks, which, even in urban locations, are often patchy. This is where Reliance Jio, whose network is less likely to be crowded in the initial phases, may offer a better data consumption experience for customers.

Kiran Jonnalagadda, founder of HasGeek, a platform for IT professionals and enthusiasts, says the quality of Jio’s service will depend on how effectively it deploys towers to extend its network. He points out that a key difference between Jio and the competition is that it has “dropped” support for 2G because all traffic on its network will be on 4G. A phone cannot run on 2G and 4G at the same time, which is why when a subscriber is on a voice call, the data call is interrupted, he explains. “In the Jio network, because it is using VoLTE (Voice over LTE), the voice call continues simultaneously because voice is data,” Jonnalagadda says. The converse of this is that unless Jio has a network that is truly nationwide in terms of reach, it would run the risk of not just dropping data transfers of subscribers but of voice calls, which is its USP now.

However, Ambani’s promise that Jio will herald a hundred-fold increase in the consumption of data appears misplaced for a fundamental reason, the same one that contributes to the extreme skew in the nature of demand for most goods and services in India, the severe inequalities in income levels. The cliche that India is a price-sensitive market is actually a euphemism to hide the truth about these inequalities. This is best captured by the phenomenon by which “missed calls” are used as a means of communication. Note that in the Reliance Jio scheme there is no low-value voice calling package (or an alternative in data terms that allows users to make voice calls). There is a good reason why voice calling remains the mainstay of Indian telephony; and that pertains to the nature of its society characterised by grave inequalities, not only in terms of income levels but also in terms of education, access to health and other social indicators that would explain the unevenness in access to the quantity and quality of data demanded by subscribers. Seen from this perspective the digital divide is not one that exists in cyberspace but one that prevails on the ground, rooted in tangible social and economic conditions.

One possibility, according to some experts, is that the Jio launch will hasten the launch of calls on Voice over Internet Protocol (VoIP). Given that most Indian operators have not only the technical capabilities but also the regulatory approvals, this may happen sooner than later, predicted Sunil Abraham, executive director of the Bengaluru-based Centre for Internet and Society. In fact, experts agree that most operators have been unwilling to launch VoIP services simply because it would cannibalise their existing operations, resulting in lower profits. So much for their claims of working for consumer welfare! Sunil Abraham, however, warns that VoIP services may not fall within the ambit of TRAI’s Quality of Service (QoS) norms because quality would depend on the quality of the network at a given point in time, which cannot be guaranteed because of the shifting nature of demand on the network.

Soon after the announcement of the Jio launch, a Reliance official was quoted by Reuters as saying that the company’s ability to conduct “deep packet inspection” of data travelling on its networks enabled it to gather “intelligent” data. Sunil Abraham is not amused. “Whether such inspection is even legal is a worrying issue even though lawyers will argue both ways,” he told Frontline . Sunil Abraham and others such as Nikhil Pahwa of Medianama have also raised doubts about how Jio’s “free” applications would be configured, especially about whether they would violate TRAI’s guidelines on “zero rating” and net neutrality principles.

The popular notion of crony capitalism is a simplistic one, resting on the idea that it is based on collusion between corrupt politicians and industrial interests. India’s experience with Reliance over more than 40 years shows that things are not as simple as they seem. Yes, it is true that Reliance has bent, twisted and shaped policy to suit its interests, but it has also done it in an extremely focussed manner. From the beginning, since the 1980s, when the Indira Gandhi regime tweaked import duties that blatantly favoured Reliance in its polyester business—the first large-scale global-scale capacities in the sector in those days—and continuing through its foray into petrochemicals, oil and gas, and in telecom since the early years of the last decade, Reliance has benefited from policies that were either deliberately ambiguous or tweaked in a manner so that it was a key beneficiary.

In keeping with Dhirubhai Ambani’s outlook on the political process, it remained unaffected by which party was in power; this ensured its march, unaffected by political changes. The significant difference between Reliance and fly-by-night operators who look to fixers to get deals done is that the conglomerate has always been focussed on the big prize. This emphasis on “project execution” is what has drawn appreciation for it; the quick build-up of globally comparable capacity in petrochemicals, in oil refining and now in telecom is what makes it formidable in the eyes of its competitors. The lazy label of crony capitalism does not quite capture this more complex picture. Seen from this perspective, “policy capture” is not the end-all in the Reliance scheme of things; it is a starting point for a wider process of accumulation.

The problems arising from the tardy regulatory regime governing telecom have been worsened by successive governments’ disregard for basic principles of fairness that foster competition and engender consumer welfare while promoting the use of technology that results in equitable access to all. The single biggest example of this abject neglect of responsibility is the manner in which successive governments have treated the two main telecom operators in the public sector, BSNL and MTNL. Both companies were not allowed entry into mobile operations until the private companies had entrenched themselves; nor were the two allowed timely investment in capacities and equipment, even when the market was clamouring for the more transparent services on offer from them. More significantly, by neglecting these enterprises, the government lost the one major option it had in preventing cartel-like behaviour of the private operators.

Although the hype about Jio as a potential saviour in the Indian masses’ search for digital salvation is obviously overstated, it is evident that it has unleashed a war that would result in a fall in tariffs in the short term. But also on the horizon is a phase of consolidation in the industry, one which would mark the return of cartels in telephony.