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Weekly Insights #19- Indian Telecom’s iPhone Moment

I was recently watching the movie “BlackBerry”, it’s a movie on how BlackBerry (Research In Motion) was founded, how it grew to dominate the mobile market and what caused its demise.


It’s a great movie to watch for anyone interested in businesses. Towards the end of the movie, there is a very specific scene that highlights an interesting factor that led to iPhone’s success & thus BlackBerry’s demise.


I have clipped that specific two-minute scene here for you-


The quote “there’s only one minute in a minute” by AT&T’s CEO captures the entire crux here. Before iPhone, the primary & dominant share of any telecom company’s revenues used to come from selling voice. Moving data over wireless networks was expensive and had a lot of bandwidth limitations.


If you will watch the movie, bypassing this issue of bandwidth limitations at the telecom network’s level is what led to the success of BlackBerry in the first place.


BlackBerry’s engineers were able to create a solution that allowed telecom networks to carry millions of phones using data simultaneously without clogging their network and thus created mobile data as a new business opportunity for telecom networks.


Watch these clips-



When iPhone was announced senior leadership at BlackBerry shunned the whole idea because each iPhone would consume huge amounts of data (equivalent to ~5000 BlackBerrys) and thought it would not be possible for telecom networks to host a large number of iPhones.


But as highlighted in the 1st clip, Apple designed iPhone in collaboration with AT&T such that AT&T network could support large number of iPhones (iPhone was exclusive to AT&T for initial four years of launch)


With this, AT&T led the evolution of telecom industry from selling primarily voice to increasingly selling data as well, which was more lucrative compared to voice; as highlighted by the comment of AT&T’s CEO- “there’s only one minute in a minute”


This story in itself a great case study of how businesses and companies can evolve. But I have more thoughts to add here.


If we look at what Mukesh Ambani is doing with JIO, it is very similar to what AT&T did with iPhone; they have moved the Indian telecom industry from selling voice to now selling more & more data.


JIO’s strategy can be summarize as follows-

1. They offered free 4G to everyone and got everyone hooked to consuming content online.

2. Even when they started charging for this data, they kept the price at extremely low rates to allow consumers to continue to build on their habit of consuming increasingly higher data.

3. Now with 5G, they are further adding to this. JIO is currently offering unlimited 5G to users at speeds that we could have never imagined. I can tell with personal experience that with 5G, the consumption of data has gone through the roof. The default setting now while watching any video is 1080p or higher vs 480p-720p earlier with 4G.


I cannot go back to consuming content on lower resolution or lower speeds now, because I am now used to this kind of speed & quality. And this is where the end game of JIO is; once we as consumers form such a habit of consuming more & more content, we would be willing to pay for it the future.


This is the finest trick in a business playbook; first you get the customer addicted to what you have to offer and then once that is done, charge them heavily for it such that it makes up for the earlier subsidized period.


I am personally of the view that Indian Telecom monetization is in a pressure cooker state wherein there would come a time in the future when the telecom companies will suddenly charge a lot more than what they are charging now; leading to some non-linear change in the earnings power of these companies.



That’s it for this week, new insight coming up next week. So stayed tuned!


 

Surge Capital is a trade/brand name used by Ankush Agrawal (Individual SEBI Registered Research Analyst INH000008941) to provide equity research services in the Indian Equity Markets.


“Registration granted by SEBI, and certification from NISM in no way guarantee performance of the Research Analyst or provide any assurance of returns to investors”


“Investments in securities market are subject to market risks. Read all the related documents carefully before investing.”


“The securities quoted are for illustration only and are not recommendatory”



Stock specific investment disclosure:

Reliance- Not Invested. Not Traded in last 30 days. Not an active recommendation in Research Services

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