How Emulating The Jio Model Could Put India’s Public Transport System In The Fast Lane

Our daily lives revolve around a lot of factors, key among them being telecommunications and transport. While the former is inundated with a flurry of private players, the latter is rarely seen in the same boat.

In the last two years, the transport sector has seen various changes while the telecom sector has left us a valuable lesson in audience building.

Enter Reliance Jio

Mukesh Ambani-led Reliance Industries’ Jio changed the face of the Indian telecom sector. Starting with free data, calls and messages for everyone in the first few months, it sent incumbent players into a tizzy, scrambling to retain customers. While many a customer did stay in order to retain their phone numbers, the number of people with multiple mobile connections just jumped with the second connection being a Jio connection. A year into operations, and six months after shifting to offering paid plans, Jio had added a total of 130 million subscribers.

Now, what is important to remember here is that Jio put off its launch for quite a while. The company rolled out a beta launch to employees and partners in late 2015 and then went ahead with a commercial launch after nearly nine months. At the same time, it had a reported investment of Rs 150,000 crore in March 2016.

Following its launch, incumbent providers slashed prices left, right and centre to compete with the newbie with plans that cost more or less the same.

Now What Can The Transport Sector Learn From This?

The transport sector has a lot to learn from Jio in terms of building a valuable subscriber or in this case, commuter base. One major difference between the two however, is that the Telecom sector is dominated heavily by private players while Transport is predominantly a government-run and regulated industry.

This form of low pricing to attract consumers, while not a new phenomenon in transport, is still much of an uncharted territory.

In 2008, the Bangalore Metropolitan Transport Corporation (BMTC), in a bid to popularise its Volvo fleet (branded as Vajra), which were hitherto seen as expensive for the common man, decided to introduce a four-day offer where all tickets on its Vajra buses were sold at a flat fare of Re 1. This ondu rupaay ticket (one rupee ticket in Kannada) scheme quickly caught on with commuters, resulting in nearly a six time increase in passengers using them. However, due to the unprecedented load, buses did get damaged. Similarly, in 2016 the Brihanmumbai Electricity Supply and Transport (BEST) undertaking started its happy hours scheme in Mumbai offering tickets and passes at half rates during non-peak hours. Of course, the best known example of this would be ride-sharing operators like Uber and Ola that offer steep discounts to new users.

In the case of BMTC and BEST, the results were quite positive. Following the flat fare, the BMTC subsequently reduced rates on weekends and holidays before bringing down rates on all days. Thus, when it increased fares in 2010, ridership didn’t drop much. In the case of BEST, the immediate result saw an increase in ridership, but due to bad quality of buses, it ended up cancelling all its air-conditioned routes nearly a year later.

A response to a query under the Right To Information Act (RTI) in 2015 revealed that the Mumbai Metro saw a dip in passengers when the fare was revised upwards, but also showed that ridership was back to normal the next quarter.

So How Should This Logically Pan Out?

The basic understanding here is that a service with lower costs to the end user would automatically witness more patronage than a service with higher costs, provided that both of them offer the same quality. Naturally, this would mean an increased cost of operations to whoever is offering them at a cheaper price. If a bus company offers services at a lower cost, it needs to offer better quality services and more buses if it has to compete with other services charging more. While Jio was lagging behind Airtel at some point in terms of internet speed, it has managed to consistently keep up the quality of its services, as data from the Telecom Regulatory Authority of India (TRAI) shows.

However, in order to maintain quality and efficiency of services, there need to be certain limits. In its initial offering, Jio restricted data usage to 4GB per day, which was subsequently capped at 1GB a day. This ensured that people still have plenty of bandwidth to consume, but also prevented heavy duty users from bringing down the network. If a transport company (transco) has to do the same, it would need to impose similar limits too, say allow passengers to only remain seated and completely disallow standees. This would in turn require more buses being brought into operation along with a higher frequency of departures. Therefore, the cost of operations will shoot up, quite massively. However, if consistency of services is maintained, it could very well translate into higher returns on investment.

An Example Of How Things Should Logically Pan Out

Now let us assume that a transco wants to do what Jio did in the transport sector across a few urban centres. The first thing it does is get its homework done. It hires professionals to study the transport industry in these cities, finds out which routes receive maximum patronage, in terms of public transport (road and rail), auto-rickshaws and taxis, ride-sharing aggregators, car and bike owners. It then looks at all the passenger flow on main trunk routes, feeder routes, last mile connectivity, etc at different times of the day. Armed with this information, it sets up the required infrastructure such as getting permissions from the relevant authorities, sets up a few bus terminals, the system for ticketing and billing, procures buses and gets ready for its launch and related promotions.

It initially acquires around 500 buses and operates them on key trunk routes. In the initial stages, it offers free rides to everyone which attracts a large crowd. After a while, it acquires more buses, and then changes its model to a paid one. In its first step, it offers a subscription-based platform for a year at a nominal price that gives commuters access to cheap fares. Those who don’t go in for this, however, pay a slightly higher plan. So, if these subscribers pay an annual fee of say Rs 100, they are charged a rock bottom fare of Rs 10 for 10 km and Rs 25 for up to 50 km. The direct result of this would be that it would acquire passengers who use cabs, autos, cars, bikes and more. People who do purchase a subscription will make use of it and continue patronising the service solely because they have paid for a premium service.

In early April 2017, days after Jio announced its Jio Prime subscription programme, it had got 7.2 crore Prime subscribers paying Rs 99 each, a figure that translates to nearly Rs 720 crore. A similar metric would apply here.

Allied Services

Jio, with 7.2 crore Prime users in April 2017, made one thing clear. It had made itself a goldmine with a large captive audience that enabled it run promotions like the one for Ed Sheeran’s concert in Mumbai last year.

Now, let us assume that our Transco has managed to acquire itself a large transport base of say 2 crore people. It is important to note that unlike the telecom sector, the transport sector will find lesser takers due to geographical limitations.

This two crore commuter base forms a large pool of people for potential advertisers and brand partnerships. Ola and Uber capitalised on their large user base – both reported a fourfold rise in users in 2017 – by tying up with brands such as DLF and MakeMyTrip and gave commuters discounted deals.

There partnerships and also advertisements form the non-fare revenue for the transco. Across other sectors, advertisements and other forms of commercial capitalisation is prevalent. Metro rail operators across the country have capitalised on their real estate with advertisements on pillars, to auctioning of station names to leasing out station space to commercial outlets. Mumbai Metro even tied up with local retailers en route to give commuters discounts on purchases.

However, it is important to note that all these would only work under ideal conditions, and in reality would work less efficiently than imagined. Telecom spectrum and buses on the roads after all, are two totally different entities.

The major drawback is that any project of this sort would require a really high capital investment, but then given how public sector transcos have been leaching taxpayer funds, high investment for better transport seems to be a good option.

The Question Of Profitability

Last week, Jio announced that it had made profits worth Rs 504 crore in the last quarter as compared to the losses of Rs 271 in the quarter prior to that. This is for a company within 18 months of its commercial launch. It must be remembered that even today, Jio is offering three month-long plans for rates as low as Rs 399.

Transport is a far more capital intensive industry, and has far more obstacles in its way. If such a model were to be implemented, it would definitely cost more than Rs 150,000 crore as an investment and it would certainly not show such profits within 18 months. It would definitely take much longer.

However, if the Jio model was to be experimented upon on a large scale in public transit, it would witness a tariff war between various transcos, resulting in each of them profiting and offering better services. Competition breeds better services and better services in transit is certainly what we need.

Given that the Indian public seems averse to paying higher fares for their transit, perhaps operators would see the benefits of capitalising in their assets.