Whither the journey of market-led reform of India's telecom industry?

Over just three years, India's telecom industry experienced significant restructuring. Mukesh Ambani shook up India's telecoms industry in late 2016 when he launched Jio with free voice and cut-price data plans, pushing some rivals out of business and forcing others to match tariffs and consolidate in a crowded sector that once comprised more than ten carriers. In this whirlpool dynamics, major operators have losing customers and profit simultaneously-leading to AirTel's reporting of first-ever loss in 14 years. AirTel lost 58 million mobile phone customers in December 2018 alone.  On the other hand, Vodafone Idea posts consolidated loss of approximately $700 million in the Jan-March quarter of 2019. Jio's aggressive subsidy driven pricing could be termed a predatory tactic, also left average revenue per user (ARPU) on a downward trend reaching Rs 67 on Sept 18, which fell from Rs 121 in September 2016. Such an aggressive move of Jio raises several questions. Will customers keep benefiting from decreasing price offerings?  Is Jio succeeding in creating a profitable business prospect for its shareholders? Is there a possibility that debt burden operators, including Jio, will get caught into an inescapable loss trap causing significant damage to India's financial industry? Once the dust gets settled, what will be the likely competition scenario of India's telecom industry?
In a recent gala event while announcing the Aramco-Reliance deal, Mukesh Ambani declared that Jio made so far $48 billion investment. Rapidly expansion of the network and free voice calls bundled with rock bottom price of data have also brought over 300 million customers for Jio, placing it at the second position. Subscribers are more or less divided equally among three major operators, having Vodafone Idea (VIL) at the top with 33.36 per cent market share, followed by Jio with 27.80 per cent and AirTel with 27.58 per cent market share. Jio's $48 billion in acquiring 300 million customers breaks down to $162 per customer acquisition cost. With the given ARPU of $0.97 per month, or $11.6 per year, Jio needs to retain this customer base over the next 15 years just to recover the investment made so far. Moreover, with the given interest rate of 6.5 per cent (used to be 14.5 per cent in 2000), the interest incurred per year on the cost of acquiring each subscriber is estimated to be $10.
Jio has spent that money mostly in capital investment and spectrum acquisition, and a small portion went for operation and marketing effort. Telecom infrastructure consists of two major components: active and passive. The average usable life of active components like base stations, radio frequency units, switches, routers, and servers is 6 to 8 years. Passive components like underground fibre optics cable and cell towers have longer life though, roughly 25 years. In general, the spectrum lease period is between 15 to 20 years. To build up the network, it's likely that Jio paid a substantial portion of the investment to foreign equipment makers like Nokia-Siemens, Huawei, Ericson, and Alcatel Lucent. It's worth noting that the Supreme Court of India held Reliance Communications chairman Anil Ambani (Mukesh Ambani's younger brother) in contempt for not paying Ericsson's dues worth Rs 550 crore, threatening to send the businessman to jail. 

It appears that predatory pricing has been the core underpinning of Jio's success in the acquisition of a large customer base. Usually, customers having high price sensitivity belong to late majority and the laggard segment of the customer base. These customers have very low loyalty; they are like migratory birds. On the other hand, they also produce very low ARPU. Moreover, research suggests that these customers mostly carry multiple SIMs. They keep changing SIMs to avail offerings of promotional packages. As a result, Jio will have a highly volatile subscriber base and least ARPU of the industry. Once Jio attempts to increase the price to recover the investment, it's likely that customer migration will show the opposite trend. Moreover, across the world, revenue per customer has been falling.
With the declining ARPU trend, it appears that Jio is unlikely to succeed in generating profitable revenue out of the investment made so far. If Jio fails to recover the investment from the revenue stream of the next 10 to 15 years, will Mukesh Ambani face the similar fate of his younger brother? Let's assume that Jio succeeds to remain in the investment mode by drawing resources from other business units of Reliance and banks. Let's also assume that the continued predatory pricing keeps customers migrating from other operators, leaving competitors in inescapable deep loss trap. Upon incurring a loss for several years, rivals like Vodafone and AirTel will likely end up in consolidation, consequently running into bankruptcy. What would be the likely implications of such bankruptcy on the Indian financial industry is worth pondering. The combined debt of these two rivals stands over $30 billion, and it has been increasing due to continued loss and interest accumulation.     
Let's assume that upon entering into other market segments such as IT infrastructure, cloud, and application service delivery, Jio succeeds to increase ARPU to reach to profit. It's worth noting that already Reliance announced a partnership with Microsoft's Azure cloud platform, in a move that deepens the offerings of its Jio telecoms unit while posing a direct challenge to rival cloud services providers such as Amazon.com and Alphabet's Google (GOOGL.O). It has also been announced that Jio would provide free connectivity and cloud infrastructure to start-ups. It's being reported that Jio will offer a "bundle of connectivity, productivity and automation tools" to micro, small and medium business for as little as 1,500 rupees ($21.05) a month. Rivals such as Amazon Web Services and Google offer similar services at multiple times that price and technology analysts said Ambani's move could spark a price war in the Indian cloud market.
As telecom industry has a natural tendency of monopoly, industry segmentation plays a vital role to govern competition. For preventing unfair competition, subsidy should also be regulated so that it does not turn out to be predatory pricing tactic to crowd out rivals. It appears that along with predatory pricing, Jio has also crossed the industry boundary. Such practices of Jio raise the question: whether it has been weakening the journey of market-led reform of India's telecom industry? Such a journey of Jio is posing a significant risk to the financial health of rivals and also itself. Due to share size, failure in debt repayment runs significant risk causing harm to the financial industry. Moreover, if Jio succeeds to monopolise the industry, India's journey of market-led reform of telecom industry will likely end up in transferring state monopoly to private hands-raising the issue of governing monopoly for ensuring the socially optimal quantity. Amid such colossal risk and financial stake, foreign equipment suppliers are the sure winner-as the rivalry has been accelerating redundant equipment deployment.