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The interesting business model of Reliance Jio Explored.

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The interesting business mode of Reliance Jio Explored

Reliance Jio, the sudden surge in network market has attracted many customers not only because of its cheap prices and freebies but also based on its previous fame (Reliance communications). In early 2000’s, Reliance communications was Mukesh Ambani’s successful venture which revolutionized the mobile industry by reducing call rates. Later when Dirubhai Ambani died in 2002, the ownership issues between his sons – Anil Ambani and Mukesh Ambani, the Reliance Empire was divided and distributed between the two and Anil Ambani received the Reliance communications. An agreement with non-compete clause was signed which prevented Mukesh Ambani from entering the communications segment until the year 2010.

In 2010, when the agreement expired, Mukesh Ambani bought a major 96% stake in Infotel Broadband. (Infotel Broadband has 4g spectrum in all sectors all over India). Fibre optic network was built all over the country and the company was renamed Jio.

Reliance Jio Business Model

As we all know, call rates are cheaper and almost free if made via internet. So, for Reliance Jio, reducing the internet prices and giving free voice calls was the main intention to gain market.

The average revenue per user (ARPU) is Rs. 150 per month that the current network providers like Airtel and Vodafone gain in India. If one spends more than Rs. 250 per month, then he/she is considered as a high value customer.

Let’s take a look at the tariff rates of Reliance Jio after 3 months.

jio plan

A voice only customer would choose the 149 plan for 28 days. In this plan, even if one doesn’t pay for the voice calls, he/she would be paying more than 150 a month. If you are a user who uses only Rs. 150 a month for your calls, sms, data and roaming, then it’s a great deal for you to buy the Rs. 149 plan of Reliance Jio. The fact here is that other networks will make Rs. 150  by charging you for sms, data, roaming, and calls and Reliance Jio despite free calls, free roaming and free sms will be making Rs.150 or more per month per user.

So who do you think is more profitable???

If you are a moderate data using person, Rs. 149 plan is of no use to you. Since there are no other plans lesser than Rs. 499, you would choose this plan to get unlimited 4g at night. So basically it’s a trick to make you spend more.

So who is going on loss here???

Also, the plans end in 28 days and not a month. So basically, one would be paying more than Rs. 150 a month as the validity is short term but perceived as a month. So, they are playing around one’s psychology.

What does 1GB cost?

Most of us don’t have access to Wifi and unlimited night data. So excluding that, the price per GB of their plans will be:

300mb @ Rs. 149 = Rs. 497/GB

4GB @ Rs. 499 = Rs. 125/GB

10GB @ Rs. 999 = Rs. 100/GB

20GB @ Rs. 1499 = Rs. 75/GB

35GB @ Rs. 2499 = Rs. 71/GB

60GB @ Rs. 3999 = Rs. 66/GB

75GB @ Rs. 4999 = Rs. 66/GB

Jio advertised all along that it would be charging only Rs.50/GB including Wifi. But since it’s not accessible to everyone and mostly goes unused, it’s being excluded. Looking at the calculations above it is not really doing as said.

Unlimited night data

Reliance Jio is completely connected all over India which is not really possible for other network providers as they pay for the connection. Connectivity makes the network strong. Reliance Jio has laid its fibre optic cables all over India very well. So they can actually provide unlimited data at more reduced rates. But that would reduce their profits. How many would use the night data which is free only between 2am – 5am.

So what is the profit made by Jio????

Unlimited free voice calls

All network providers charge for voice calls and internet. But there are apps like whatsapp and hangout which help you to make voice and video calls at no extra cost. So providing free voice calls doesn’t make any loss to Reliance Jio as they have a well laid network for which they don’t have to pay. All that Jio might have to pay is the interconnect fee of Rs. 0.14 to network you call which is negligible for them.

TRAI might reduce this interconnect fee further or make it free in future. So will Reliance JIO make profit or loss????

LYF phones and Jio apps

When Jio was started, Jio sim’s were available only with LYF phones. This was done, because LYF phones are china made, outdated phones were bought in bulk from china at cheaper prices and sold in India, 4g phones were required for their network and more importantly they wanted to solve any issues in their network at cheaper costs.

What an idea sirji???

Their apps are free till 2018 which have very high potential. It might start charging for these apps later.

Also, the bills might reduce by 50% if your data usage doesn’t increase.

Facts apart, it is also providing huge job opportunities for people in India. So Reliance is making a win-win situation.

All said and done, people using Reliance Jio 4g might have to pay over Rs. 500/month which is just unimaginable profit that Reliance Jio would be making.

This win-win business model will definitely give more value for customer’s money while making huge profits in its own way.

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