Telecommunication It is a wholly owned subsidiary of Reliance

Telecommunicationindustry in India is one of the most prevalent sectors and is growing rapidlyover the last decade.

India is currently the second largest telecommunication marketin the world and contributes to the India’s Gross Domestic Product (GDP) in asignificant way.Forthe last 8 years, Indian telecom industry is under tremendous pressure due tothe rise in the number of players in the market which has resulted in stiffcompetition and rise in capital intensity leading to decline in thecontribution of telecom services to GDP from 2% in FY09 to a low 1.2% in FY17over the last period. The telecom players in the Indian market have also seen aconstant decline in their profitability ratios during this period and areunable to earn their cost of capital because of continuous investments inregular spectrum auctions.Theindustry faced a major disruption and margins impacted because of the highdegree of financial leverage from the new player Reliance Jio. Reliance JioInfocomm Limited or Jio is an LTE mobile network operator in India. It is awholly owned subsidiary of Reliance Industries headquartered in Navi Mumbai,Maharashtra.

Its services were commercially launched in India on 5 September2016. It is the only ‘VoLTE-only’ (Voice over LTE) operator in the countrywhich lacks traditional network support of 2G and 3G, with coverage across all22 telecom circles in India. It owns spectrum in 850 MHz and1,800 MHz bands in ten and six circles, respectively, of India’s 22circles, and also owns pan -India licensed 2,300 MHz spectrum which isvalid till 2035.Industry before RelianceJioTheIndian telecoms sector has traditionally been voice driven.

In 2016, India wasalready one of the largest smartphone markets in the world in terms of volume.Bharti Airtel, Vodafone and Idea were the top three players of the Indiantelecom market and together accounted for more than 74% share of the totalmarket at the end of March 2016. The market was dominated by these marketplayers with heavy profits to the larger players. (Figure I of Annexure)Scenarioafter the launch of Reliance Jio:After the successful beta implementation of Reliance Jio, it waslaunched on September 5th,2016 for the general public. The launch ofReliance Jio forced all the major telecom operators to change their pricingstrategies, much to the delight of consumers as Jio offered free 4G data aspart of its welcome offer till December 31, 2016. With Reliance Jio 4G SIM, onewould also get free unlimited voice calls (local and STD), with free roamingacross the country. Jio 4G then came up with free 4G data services with a capof 4GB usage per day till December 31. The SIM provided access to high-speedinternet, almost throughout the day, and across the country because of Jio’shuge network.

The Jio 4G SIM was available for free at Reliance Digital storesand several other outlets across the country.Thetraditional concept of voice over data was shaken up to the core. There was asudden change in the data usage and people started questioning about thepricing of other companies.

The competitors in what can be seen as a pricingstrategy to counter Reliance Jio were forced to cut down prices and introducenew plans to stop customers from luring away. Airtelannounced free voice calls across India bundled with 300 MB of 4G data at Rs145and Idea Cellular Ltd too was forced to launch a similar offer—bundling freecalls on its own network and 300 MB 4G data—at Rs148 for its prepaid customers.This was the beginning of telecom war that disrupted the Indian telecom sectorand many analysts suggesting consolidation would be the way out in near future. PWC has had predictions for key trends for 2017 asthat the data realisation per MB would continue to fall. The telecos would haveno choice but to accelerate the transformation towards a low cost per MB modelwhich will lead to large cost efficiency initiatives and better connectivityacross the country. It will also further lead to telephone sector consolidatingto five private networks and one public sector (5+1). The mergers being TataGroup’s wireless phone business acquisition by Bharti Airtel and the to becollaboration of Vodafone India Ltd and Idea Cellular Ltd.

(Refer to Figure II& Figure III-regarding change in prices and market share is given at theAnnexure).