It has been two decades since I’ve seen anything like the apparent regulation-assisted business model changes that apparently have helped Reliance Jio earn a profit within two years of launching its attack on the India mobile market.
The profit also is based on accounting rules, as Jio still has negative cash flow. In other words, Reliance Jio is able to capitalize some operating expenses.
Still, it is fair to note that some regulatory changes have simultaneously harmed Reliance JIo’s biggest competitors, and helped Jio reduce its own operating expenses.
The last time I saw this sort of regulatory arbitrage was back pre-2000, when incumbent and upstart telecom firms sparred over reciprocal compensation fees paid to firms for terminating calls on their networks from other service providers.
Basically, because such fees were very generous in a few locales, long distance conferencing services started businesses in those areas, charging very-low calling fees and essentially making their money on the earned reciprocal compensation fees paid by the calls inbound to the conference calling centers.
The same idea was used by call center operations, where most of the traffic, by definition is inbound, rather than outbound.
The same arbitrage could be used by dial-up internet access providers, since--again by definition--the customer traffic was inbound from other networks (customers dialing in to create an access session).
Essentially, disparities in traffic flow also underpin the economics of rural and other small telecom companies as well, where long distance calls (disproportionately important in rural areas) generate an originating access fee that is paid by the long distance carrier to the originating call network.
The point is that, at crucial times, regulatory arbitrage can provide a bit of breathing room while erstwhile upstarts sprint to gain market share and reach sustainability. Arbitrage likely is not a sustainable strategy for Jio, anymore than it has proven to be sustainable for many other service providers.
But, at least in principle, such arbitrage can help in the formative years.
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