Will free calls help Reliance Jio to increase market share, it must be a huge burden and expense to the company?

Question

How will providing free internet and voice calls help Reliance in increasing its market shares as more people are purchasing the Jio sim, it must be a huge burden and a expense to the company?

Answer

Will free calls help Reliance Jio to increase market share, it must be a huge burden and expense to the company? Reliance Industries have recently (September the 5th 2016) launched the Jio mobile phone service in the huge Indian mobile market. The launch has attracted great attention because of its offer of free service for 3 months and free voice calls for the entire plan. Reliance Industries owner Mukesh Ambani claimed that they also offered the lowest mobile data rates in the world (Indian Express, 2016). The strong move by Jio to compete on price is a clear strategy to try and rapidly increase market share by undercutting competitors. The move is likely to lead to a price war between companies to lower mobile charges and also to improve service as ways to compete (Narayan, 2016). There is evidence of this already emerging as Bharti Airtel reduced mobile data prices (Mundy, 2016). Many Indian consumers are price sensitive and so will likely respond well to the low cost and free offerings. The aggressive technique is likely to be successful as long as the firm can provide good service to support it. The move is likely to come at a high cost to the company as it will need to cover the initial costs of introduction and expansion while operating a business model with very low profit margins. Analysts predict that the company could take as many as 5 to 8 years before becoming profitable (Safi, 2016; Economic Times, 2016). This presents a clear problem for the company, but the huge financial power of Reliance Industries and the Ambani family can sustain this long period of loss. Jio’s owners appear to view the company as a long term investment that is worth the almost certain losses over the next few years. Due to the massive growth of mobile phones and internet usage in India, securing market share now may turn out to be hugely profitable in the future.

References

Economic Times, Reliance Jio Infocomm could take 7-8 years to become profitable: Morgan Stanley (online), The Economic Times, available; [http://economictimes.indiatimes.com/industry/telecom/reliance-jio-infocomm-could-take-7-8-years-to-become-profitable-morgan-stanley/articleshow/40420342.cms], accessed: 27/09/2016 Mundy, S., 2016, Reliance declares mobile data price war in India with Jio (online), available [https://www.ft.com/content/f1e7d964-701c-11e6-a0c9-1365ce54b926], accessed: 27/09/2016 Narayan, K., 2016, Reliance Jio offers free voice calls, cheap data plans (online), Indian Express, available: [http://indianexpress.com/article/technology/mobile-tabs/reliance-jio-launch-free-voice-calls-cheaper-data-tariffs-mukesh-ambani-3008843/], accessed: 27/09/2016 Safi, M., 2016, Reliance Jio launches cheap 4G services in India (online), The Guardian, available: [https://www.theguardian.com/world/2016/sep/05/reliance-jio-launches-cheap-4g-services-in-india], accessed: 27/09/2016