Explainer: Why some people want to boycott Jio and what it means for the telecom sector

Mukesh Ambani’s Reliance Jio has always made waves regardless of what it is doing, but this week the telecom company finds itself in an unusual place. After years of insisting that voice calls on the network will always remain free forever, Jio announced this week that users will be charges 6 paise per minute for voice calls made to other networks.

The news did not go down well with customers.

What is going on?

What is Jio?

Reliance Jio, founded by India’s richest man, Mukesh Ambani, has scripted one of the world’s most remarkable business stories over the past few years, entering the Indian telecom sector with a huge splash that gave away nearly every service for free for a limited time. The introductory offers, coupled with extremely low tariffs and in many cases services that were touted as free for life, saw customers sign up to the network in droves.

From its launch in September 2016, Jio is now the number 1 telecom company in India both from a subscriber market share angle – where it has 27.8% compared to Airtel’s 27.6% – as well as a revenue market share perspective. A note by India Ratings earlier this year said that, if it grows as its current rate, Jio could well control 45% of the market by 2022.

This stunning entry has not come without controversy. Jio’s rock bottom tariffs, including charging customers almost nothing in its first year, was labelled anti-competitive predatory pricing by the other operators, though the regulator did not agree. Those rates forced the other companies to also drop their prices, giving Indians access to some of the lowest calling and data tariffs in the world – but also forcing all the telecom networks to pile up massive amounts of debt.

What has changed now – and why is it controversial?

Although Jio’s everything-is-free plan only last for a year, its tariffs even afterwards were extremely cheap. And through the entire process, Jio told its customers that voice calling would always be free, forever. Every one of Jio’s pre- and post-paid rental plans on offer had free calling.

This week, however, that has changed.

Jio announced on October 9 that it will start charging 6 paise per minute for all calls to non-Jio numbers. Suddenly from completely free calling, Jio customers would have charges for calls for the first time ever. And because India has mobile number portability, meaning you can move phone numbers between networks, it is impossible to say whether a call is to a Jio number or not, though the company made it clear that calling numbers on its own network would remain free.

Why did Jio introduce this charge?

The answer has to do with the way Jio has skewed the market – and its expectation that the regulator would allow it to. Jio may have forced the other telecom networks to lower their tariffs but Airtel and the recently combined Vodafone-Idea do not offer free calling.

As a result, according to Jio, its network gets 25 to 30 crore missed calls on a daily basis from Airtel and Vodafone-Idea customers. Jio users then call back those on the other networks, since calling for them is free.

Why does this matter? Because calls between phone networks, such as one originating from a Jio number and going to an Airtel one, have an “interconnect usage charge”. The originating network pays the receiving network a fee. Although these charges can be a significant percentage of network revenue, before Jio’s arrival they tended to be somewhat evenly spread out.

But because of the missed call skew, Jio customers ended up making many more calls than they receive, meaning Jio has to pay much more in interconnect usage charges than it receives. The company claims it paid Rs 13,500 crore in these interconnect payments to other networks over the last three years.

But Jio has always known this, right? Why now?

This is where the regulator comes in. Not only has Jio always known there is an interconnect charge, it also announced completely free calling for lifetime for its customers when the charge was as high as 14 paise per minute. The Telecom Regulatory Authority of India, which oversees the sector, had subsequently lowered this to 6 paise per minute, which is the rate Jio is now charging its customers.

While lowering the interconnect charge to 6 paise, TRAI in 2017 had also announced an intention to lower the charge to 0 by January 1, 2020 – which may explain why Jio continued to pay the amounts without charging its customers until now, expecting the rate to eventually become nil. Still, it is worth pointing out that there was no assurance that this would happen when Jio first announced its lifetime-free calling back in 2016.

Still, regulators have generally been favourable to Jio, and so the company must have expected the interconnect usage charge tariff reduction to be on track. Earlier this year, however, TRAI asked telecom operators or their comments on whether the abolition of the interconnect usage charge should be postponed considering the state of the sector. This means that the January 1, 2020 deadline may no longer hold.

As a result, Jio has added the charges and told its customers that they would only apply as long as the inteconnect usage charge rates remain in place.

What is the Jio IUC pack?

Jio has offered to compensate for the amount its customers will spend on voice calls with data instead, in the hopes that the new charges do not alienate customers and send them to other networks. This would mean that for every Rs 10 spent on voice calls, Jio is offering 1 GB of data to its customers.

Though it is explicility tying the charges to IUC fees, some are seeing this as the end of the race-to-the-bottom tariff war that has added huge amounts of debt to every network.

What does this mean for the sector?

The announcement drove up the share prices of Vodafone-Idea and Airtel, which currently receive a significant amount in interconnect usage charge fees – giving the heavily indebted companies a reasonable amount of cashflow. If the charge had been brought down to zero, it would have made their finances even more precarious.

According to some, however, the interconnect usage change regime gives perverse incentives to the older networks to provide bad services to its poorer customers on 2G networks, and keeping the charges will prolong this.

Jio’s seemingly unhappy move makes it seem as if it can no longer expect the regulator to do as it expected, and that might keep the other networks safe for some time, at least on this front.

But the manner in which Jio made its change is significant.

Rather than announcing a general tariff increase, Jio explicitly connected its rates to interconnect usage charge and said that voice calling would go back to being free if the charge is abolished. This in some ways sends a message to TRAI. Jio has also carried out a marketing blitz over the last day on social media attempting to sensitise the public to the specifics of the interconnect usage charge, in the hopes of pushing back against the ‘#BoycottJio’ trend on Twitter and also to put pressure on TRAI.

How this will play out, in a sector that has seen tremendous tumult over the last three years (if not three decades), remains to be seen.