As a late entrant in the Indian telecom sector, Reliance Jio (RJio) launched its telecom services in 2016. It started with an aggressive price war with a ‘Welcome offer’ and other ‘Promotional offers,’ extending almost free call and data services to subscribers. The low prices, which sought to build a subscriber base rapidly, attracted over 252 million customers by September 2018, making RJio one of the fastest growing telecom companies in the world.
The price war made competitors like Bharti Airtel, Vodafone India and Idea Cellular cut their prices. It reduced their profitability and long-term viability. With falling average revenue per user, increasing investment overlays, the rising cost of acquiring spectrum, growing operating expenditure of upgrading telecom networks and of maintaining hardware and software, the profit margin of telecom companies dwindled.
Most of them took on more debt to fund their spectrum purchases and operating expenses. The interest costs of debt further worsened their financial position, triggering a spree of consolidations. Vodafone India and Idea Cellular merged to form Vodafone Idea Ltd., Bharti Airtel acquired Tata Teleservices and Telenor, and Reliance Communications and Aircel Ltd. were forced to file for bankruptcy.
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