Make no mistake, Reliance Jio's entry into mobile data and voice services is going to cause a tectonic shift in the industry. Not because the rates for data are low; or voice is free. The Jio rates are not significantly lower than what other players are offering. Nor is it due to the PM himself “lending” his image to Jio, an Ambani product.
So why do I call this is a tectonic shift? Mukesh Ambani's Reliance Jio has now birthed the convergence paradigm that all voice calls should be treated as data. Everyone knew this was coming. Jio has just moved the start date forward.
For understanding the business model of Jio, we have to understand what revenue truly is. Once the infrastructure is built, the running costs of a telecom network are low. A network therefore does not incur costs per call or cost per data packet it transmits. Consequently, revenue is not the revenue per call or revenue per Gigabytes (GB) of data, but what the telecom company extracts from you as a consumer per month. Or in telecom language, the average revenue per user (ARPU).  It is the monthly bill that you pay that really matters. This is what Jio is betting on.
Today, voice calls based on internet applications on your smart phone – Whatsapp, Signal, Skype – are already being done as data. Unlike other telecom companies, Jio does not have any existing voice customers; they lose nothing by offering free voice. In order to get free voice, the consumer will have to subscribe to a Jio data plan. As long as the average revenue per user remains high, Jio has no problem giving away voice free.
Looking at Jio's data plans, their ARPU – even for the lowest slab which is Rs 149 for 28 days – is going to be higher than what the bulk of voice consumers today pay and almost the same as the ARPU of Vodafone, which has one of the highest ARPU – of Rs 175 per month – among the existing telecom players.

Major Disruption on the anvil
Most of voice calls today use data links for the backhaul, particularly for long distance. Jio is using this model for all voice calls. For those who would argue that this is the dreaded Voice over Internet Protocol (VOIP) that needs to be separately licensed, they “forget” that the existing Unified License already has a license for VOIP, which the existing operators have not exercised. Jio is using the hole that exists in the existing Unified License scheme of the VOIP license to defeat the “keep VOIP out strategy” of the existing major players. With Jio, they now have an enemy within their ranks. This is the major disruption that is on the anvil now.

Can the existing telecom operators fight this disruption? That will depend on what they do now. One is clearly offering VOIP as per their original terms of the Unified License and bring down the costs for voice. The second is to offer a quality of service that is better than what Jio can offer. They have a country wide network, and can leverage that to their advantage. What they will find hard to beat, is the fibre optic network that Jio has built across the country, that is streets ahead of the competition.
Are Jio rates ridiculously low as it is being hyped in the media? No, they are not. This is the razzmatazz of marketing. They have apparently offered Rs 19 for free voice and 0.1 GB of data, which is unlimited at night. Seems very attractive for young users, does it not? But let us look a little closer. The Rs 19 plan is for a day! This means over 30 days it is Rs 570 and therefore not low at all. And night is defined as 2 AM to 5 AM! The Jio plans, once you look at them closely, look a lot less attractive than they appear at first sight.  If we “deconstruct” them, offer by offer, we see they have a 7 day plan, a 21 day plan, and finally a 28 day plan. If we convert them to equivalent monthly plans – apples to apples and not apple to peanuts -- we find that there are others who are offering similar data rates. For example, Anil Ambani's Reliance is offering data services – Rs 500 for 5 GB as against Jio's Rs 499 for 4 GB   – that are actually cheaper than equivalent Jio plans.  

For the existing telecom operators, this is the evil day they have been postponing. About 70 percent of their income is from voice calls. If we consider them as data, the voice consumers are being charged 60 to 70 paisa per call minute, which should only be 2 paisa per minute in data terms.
Not surprisingly, the companies that still earn a huge part of their current revenue from voice are upset. They have had a good run, built their fortunes on gouging the voice consumers in India. When mobile telephony started in India, the initial rates were Rs 16 and Rs 10 per minute for making and receiving calls. I remember the huge battles we had in Telecom Regulatory Authority of India (TRAI) in trying to lower these outrageous charges. In one of the hearings I had asked why a mobile call should cost 48 times more than landline costs, when the cost per line for a mobile was one fifth that of a landline user? The TRAI saw their major task as helping the mobile operators in breaking the BSNL (Department of Telecom in those days) monopoly, and protected the mobile operators.  They helped the Airtels, the Vodafones (or their ancestors) along with Cellular Operators Association of India (COAI), in gutting BSNL, paying as little as possible to BSNL as interconnecting charges, while the keeping call rates very high for the consumers.

For a long time, despite a license, the government – then under the BJP – prevented BSNL and MTNL from entering the mobile market. It was BSNL's entry, Reliance promoting Limited Mobility by misusing their landline license, and consumer resistance that brought the first crack in this high price mobile regime. It was a combination of competition and consumer resistance that brought down the mobile telecom rates. India transitioned to a low cost mobile market by treating mobile telephony not as a value added service, but a basic telecom service.
The landline route for increasing teledensity has to contend with the very high cost of the network, particularly in sparsely populated areas. Mobile infrastructure can be deployed much faster, and at a much lower cost. This is what helped India to provide high connectivity or (teledensity) to its consumers.  
In many countries, mobile is still treated as a premium, value added service and has high call rates. The mobile rates in most of Europe are still higher than their landline rates, and much higher than what we have achieved in the country. In most of the developing countries, it is switching to mobile networks and a low mobile price regime that has made possible improving teledensity. India is one of the first to have followed this route.  

The existing telecom operators would have to rejig their operations quickly to meet the Jio threat. One route they have taken is denying Jio interconnections, leading to call failures when Jio subscribers call a person on a network other than Jio. The pretext is that as Jio is officially starting commercial operations from January 2017, they are required to provide only a few interconnections for testing purposes.

This may work for some time, but not for the long run. Once we accept that voice will now increasingly be treated as data -- whether it is Whatsapp or Jio -- the existing telecom players will have to generate more revenue from data services to compensate for their voice revenue loss. This demands that their data traffic increase dramatically, and a major scaling up of their networks. This is what they have not done. Instead, they have been relying on the very high revenue they earn from their existing voice services, treating data as a luxury. If we take the purchasing power of the people into account, the data charges in India are very high.

Murky record
Is Jio a boon to the Indian telecom sector? Far from it. Reliance has a murky record of bending laws, if not breaking them
While Reliance did help break the mobile operators cartel, they also broke a number of laws. Some of them were criminal acts, carried out with full knowledge of the owners – Mukesh Ambani and Anil Ambani. Given their political and financial clout, they got away with a rap on the knuckles and some minimal fines.
In this case too, they have received the blessings from the Department of Telecom in various ways. One is securing the 4G or BWA license itself. Mukesh Ambani's Reliance created a front company – Infotel Broadband Services Pvt. Ltd with a net worth of a paltry Rs 2.5 crore. For 20 megahertz (MHz) of the spectrum in all 22 circles, Infotel paid Rs12,847.77 crore, or 5,000 times its net worth of Rs 2.5 crore! Once Infotel secured the licenses, all pretence was dropped and it was formally “acquired” and renamed as Reliance Jio, the current avatar.
The Comptroller and Auditor General (CAG) in its May report has charged that Reliance Jio has been shown undue favours to the tune of Rs 20,000 crore.  While DoT has tried to defend itself on CAG's observations, it is difficult to see what defence there can be on some of the issues. How can a company with net worth of Rs 2.5 crore be allowed to bid, when the reserve price itself is in thousands of crores? This is a gross violation of bidding practices. CAG has raised other issues as well: how can a Unified License be given in 2016 at a price discovered in 2001? If nothing else, should it not be adjusted with the price index or the value of a rupee then?

We need to separate the violations of Jio in securing licenses from the underlying telecom issue. Mobile telephony was indeed a technological revolution in telecom. The Jio plan has not built any such new technology. The telecom issue is the convergence between voice and data services and the challenge it poses for the regulatory regime. It is the regulatory regime that has now to address the technology change that has been around for quite some time.