Duopoly fear in telecom as Jio flush with funds

The most fascinating development in the business world right now is the massive infusion of global funds into Jio Platforms, the holding company for all digital operations by Reliance Industries. Facebook took the lead in April, taking a 9.9 per cent equity stake with an investment of $5.7 billion, followed by many leading investment firms, along with Qualcomm. The last was Google’s announcement of $4.5 billion for a 7.7 per cent stake, as well as plans to jointly develop a cheap smartphone for the common man. This came along with the news that Jio had developed home-grown 5G technology, the first Indian telecom company to do so.

Advertisement

The growth of Jio has been in line with the pattern of forward and backward integration that is the hallmark of Reliance Industries. Company founder Dhirubhai Ambani started off as a textiles trader, but then moved into the manufacturing of synthetic fabrics needed for garments. And next, he began to produce the polyester yarn needed for this fabric. Finally, his company set up a petrochemicals plant to make the raw material for the yarn.

Similarly, in the petroleum sector, the company set up the entire range of upstream and downstream infrastructure — right from oil exploration and production to oil refining and finally down to the retail distribution network for petroleum products.

The integration process in Jio Platforms is on the same lines. It brings the company to a point where it is involved in a wide gamut of upstream and downstream areas in digital services. As a telecom operator, it has already been producing a cheap smart feature phone and offering apps to its subscribers. It has now moved on to developing an indigenous 5G technology. It even has a tie-up with Microsoft to use its cloud platform. The new collaborations with Qualcomm, Google and Facebook will enable access to digital technology, including artificial intelligence (AI) and the Internet of things.

Having a multi-faceted forward and backward integrated entity in digital services is definitely a strength for the country at a time when cyber security is becoming critical. At the same time, it throws up challenges to ensure sufficient competition in these sectors.

First, the big question. Why did Facebook and Google and other leading investment firms make the big-bucks investments in Jio Platforms? The answer is clearly that returns on investment are certainly guaranteed, given the successful track record of the Mukesh Ambani-owned Reliance Industries. The other consideration has undoubtedly been a general perception that this business house has enormous clout with the government of the day.

The extent of the company’s sway over even supposedly independent institutions can be gauged from the recent move of the telecom regulator to suspend premium plan offers to subscribers by Jio competitors — Airtel and Vodafone — pending an inquiry. The scrutiny of the plans apparently followed a plea by the Reliance subsidiary. Significantly, the suspension order was reversed by an appellate tribunal, describing it as lacking even prima facie reasons.

The second issue is whether the proposed new cheap smartphone to be developed jointly by Google and Jio will become a gamechanger. It does have tremendous potential, given the fact that it will target the huge untapped Indian market for smartphones. Mobile phone users in the country are currently estimated at 1.1 billion, of which about only 40 per cent use smartphones. There are thus big prospects, but it remains a price-sensitive market as feature phones can be bought for as little Rs 2,000 each.

One of the perceived advantages of making a cheap smartphone available to the masses would be the ability to bridge the digital divide. This divide has become glaringly obvious in recent months with the closure of schools. That has left millions of poor children in both urban and rural areas without any access to online education. But it has to be recognised that any such initiative has to go in tandem with increased spending on educational infrastructure, especially in rural areas. Even the widespread use of smartphones will not change the reality that families are not likely to make them available for educational use by children.

And, finally, it has to be wondered whether the evolution of Jio platforms into an all-encompassing entity for digital services will mean that it becomes a dominant player in key areas. Jio will apparently be involved in online retail, content streaming, digital payments, education and health.

As far as telecom is concerned, it currently has the largest share of the mobile phone market at 34 per cent, followed by Airtel at 28 per cent, Vodafone at 27 per cent and public sector BSNL at 10 per cent. The weakest in the pack is Vodafone-Idea which is struggling to meet its court-mandated tax dues to the government. In case it ultimately collapses, as is being widely speculated, there will be an effective duopoly in the telecom sector. This will obviously hurt consumer interests as Jio and Airtel could conceivably in the future join hands to raise tariffs. It may sound like a doomsday scenario but would be the inevitable result of allowing a duopoly to become a reality.

It is also possible that competition is eliminated in other segments of digital services where Jio is playing a larger role. For instance, its foray into retail with kirana stores has coincided with tougher policies being finalised for e-commerce companies. The threat from e-commerce competition is thus sought to be doused by new restrictive policies. As for content streaming and digital payments, currently, there seems to be enough competition in these areas to prevent dominance by any single player.

The issues of monopolistic tendencies and lack of competition in the information and telecom industries need to be monitored carefully by the government as well as by the Competition Commission. While it is all to the good that this country can create large corporate entities that are capable of taking on retail giants like Amazon and Walmart, their growth must be scrutinised to ensure that competition is not stifled and consumers interests are not affected in any way. The primary goal should be to protect the interests of these consumers in the long run.