Reliance Jio may soon announce acquiring 10 million customers. It has already created mass frenzy with its four month free offer for 4G services and free unlimited calls after that. There are long queues outside stores selling its SIMs and phones. One shop at Lodhi Road in New Delhi has even set up a shamiana for the crowd.

After observing the crowd flocking to its stores, all I can say is that majority of them would subscribe to the entry level tariff package of `149 per month that would enable them unlimited voice calls and a 0.3 GB of 4G data per month. Later, it may attract high paying retail customers when its services are easily available.

Jio impact in the market is that the customer has again become king. However, I fail to understand how it would work for the company under existing Interconnection Usage Charge (IUC) regime.

IUC becomes applicable when a customer of one network calls subscriber of another network. The Telco at whose network call terminates gets paid by the Telco who is originator of the call. Presently, IUC charges are 14 paise per minute when a call terminates at mobile network.

For example, if a subscriber of Reliance Jio calls a subscriber of Airtel, Reliance Jio will pay Airtel 14 paise per minute. For incumbent operators, generally the number of incoming calls is equal to outgoing calls. However, for new operators the outgoing calls are always more than incoming calls. This is where the problem with Jio’s strategy of offering unlimited voice calls lies.

Now let us work out the numbers. Consider a Reliance Jio customer who has subscribed to its entry level package. If the subscriber talks 35 minutes per day to the customers of incumbent operators such as Airtel and Vodafone, Jio will have to pay `149 per subscriber per month to existing Telcos. So whatever Jio earns from a subscriber, it will have to pay to its competitors.

This is under assumption that there are no incoming calls to Jio subscribers. This can’t be the case. There will always be incoming calls. However, outgoing calls from its network will be much higher than the incoming calls, especially during initial years.

Let us assume outgoing calls are four times more than incoming calls. In that case if a Jio subscriber talks 48 minutes per minute, the company will have to pay to incumbent operators whatever it earns from its customers.

If we assume that number of outgoing calls is double than the incoming calls, then one hour of talk time would make it pay to incumbent operators more than what it earns from its customers.

It is a very simplistic analysis of Jio’s business model. There would always be other sources of revenue. However, this analysis makes it clear that Jio’s strategy of unlimited free calls for `149 will not work under existing regulations. No wonder, Jio would like a review of the existing IUC regime and the incumbent operators would oppose it.