why we need more jio-styled cos, and psu need to cut costs

the world is becoming ultra-competitive, all thanks to greater than ever dissemination of information through electronic means. today, no company (except those with cutting-edge tech like google and microsoft) operating in a specific industry can expect to be the sole beneficiary of demand for a particular product/ service. margins are getting thinner and this is all a good sign, we will tell you why.

for a country like ours, all problems lie in income disparity that has only exacerbated despite of political promises to curb it. with those who earn handsome money and are willing and actually spending large sums on imported goods like electronics and garments, our trade balance has suffered. this ‘handsome money’ that they make can be attributed to the irrationality of their employers.

companies, both private and public, have not prudently considered changing market conditions and are thus unable to rein in rising operating expenses, especially those incurred on salaries.

take airtel for example. post jio’s entry in the telecom sector, not only the competitors had to reduce their prices for services they offer, they also had to cut on operational costs, resulting in laying off of large number of employees and rationalization of salaries of others.

take another case of private vs public sector banks. when one compares annual cost to company of a state bank of india (sbi) employee with that of his counterpart employed with a private sector bank, huge difference in favour of sbi employee comes as a shock. when market was opened for private and foreign banks in the country, the public sector banks didn’t notice the competition coming and failed to cut their operational costs. the irony is they gradually increased perks of their employees.

jio teaches a lesson to all market players. every sector is vulnerable to competitive forces and no enterprise can senselessly spend on pleasing their workforce. gone are the days when near-zero annual salary increments came as a shock only for a few handful companies. today, enterprises may even need to cut down salaries from past years so as to survive the competition. else, there will be no alternative to posting losses in books, defaulting on bank loans and finally going into liquidation.

to correct the market and more importantly correct the distortion in salaries, we need more and more market participants like jio. they would teach their respective sectors how to run businesses with thin margins by rationalizing costs.

jio’s free data, calls plan is not predatory, let’s see why

what does jio or other telecom companies provide to the hefty customer base? a service that is enabled by purchasing spectrum from the government, hence no manufacturing, no use of inputs per unit, barring some technology and few essentials like towers and cables. so the radiowave that allows you to make calls or download data is all but any cost-incurring product. it may be 100 minutes of talktime or 1000 minutes, 1 gb data or 10 gb, hardly does that matter to your telecom company.

while submitting its arguments in the court, the attorney general, representing the government, clearly mentioned about the cartel of 4-5 telecom companies having billion subscribers and making inr 250 crore a day just from outgoing calls.

he also stated that none of the companies is ready to invest in technology and cited the inaction on their behalf to contain call drops. special mention was made of their counterparts in china who are more inclined toward upgrading their technology.

let’s view this with a wider glance. services are not manufacturing, although they are categorised as industry. a basic difference between the two is that while manufacturers have to spend additional cost on every new unit they produce, service providers have no such costs, even when they have, it’s trivial.

this is true with almost every industry in service sector- banking, telecommunications, hospitality or consultancy. while for manufacturers, competition crops up without delay and doesn’t allow superfluous profit-making, services enjoy some immunity.

moreover, services rank lower than manufacturing or agriculture in terms of their essentiality, hence under no good economic sense can they be allowed to make excess profits; rather, they must be free or provided at no profit no loss criteria since they are enablers, not the makers. internet only helps us know about happenings, helps us communicate, be educated, it cannot feed a child.

jio’s entry saw other players offering four-fold more data and free calls at same old tariff. how? do they fear losses? no. more players like jio will only correct the market, not distort its equilibrium.

give your verdict: