Home / Mobile / Reliance Jio's big giveaway gamble reshapes India's mobile world – Financial Times

Reliance Jio's big giveaway gamble reshapes India's mobile world – Financial Times


On a cool morning in Mumbai’s vast slum district of Dharavi, Prakash Babu sits on a roadside bench next to stacked bundles of banana leaves, downloading videos on to a new Chinese smartphone.

Mr Babu bought the phone this month to take up an extraordinary deal from Reliance Industries — an Indian oil products group that is offering free mobile voice and data services nationwide for six months on its new Jio service, as it fights its way into the country’s crowded telecoms sector.

The 33-year-old, who left the southern state of Tamil Nadu a year ago to work in Mumbai’s printing industry, is now able to watch his fill of the Tamil music videos that remind him of home, he says, while keeping in touch with distant friends and family through messaging apps.

“Back home too, the whole village is on it,” he says. “All of India is on Jio.”

Mr Babu is one of more than 70m Indians who have rushed to take advantage of the biggest corporate gamble in the country’s history.

Reliance Industries, chaired by Mukesh Ambani, India’s richest man, has ploughed more than $25bn into an assault on the country’s telecom sector, announcing its entry with a promotion of unprecedented scale. The service giveaway by its Jio subsidiary, which began at its September launch, is scheduled to continue until the end of March and may run for even longer, a Jio executive hinted to the Financial Times this month.

The launch came after six years of greenfield investment at a scale never before seen in the global telecoms industry: after a Rs300bn injection into Jio announced last week, Reliance will have invested Rs2tn ($29bn) in the subsidiary.

The long lead time for Jio’s introduction has drawn sneers from some rivals in a sector led by homegrown companies Bharti Airtel and Idea Cellular, and UK-based Vodafone.

“Don’t tell me that his original plan was to launch in six years,” says a senior executive at one rival telecom operator. “Let’s understand that he would have made a lot of mistakes, and wasted a lot of money.”

Mr Ambani has dismissed such sniping by arguing that the enormous investment has given Jio a network that beats its competitors, enabling people across India to access high-speed data.

Its arrival has cast a shadow over the financial outlook for a sector that was already battling heavy debt and squeezed margins. And it has opened a bitter war of words between Jio and the incumbent operators, with each side accusing the other of foul play in the fight for India’s mobile market — one of the biggest prizes in the global telecoms industry. India is set to overtake the US this year as the second-biggest smartphone market by unit sales, according to Morgan Stanley.

Mr Ambani opened this battle of nerves on September 1 with a triumphalist speech to cheering Reliance shareholders at a conference hall in south Mumbai.

“We are at the beginning of a new era, and India cannot afford to be left behind,” he said. Even after it started charging customers, he said, Jio would offer mobile data more cheaply than before, through the latest fourth-generation (4G) network, while unlimited voice calls would always be possible at no extra cost.

Indians were subjected to a publicity blitz around the launch, featuring newspaper advertisements using the image of the popular Prime Minister Narendra Modi — without seeking permission from his office, parliament was later told.

In towns and cities around the country, long queues formed outside shops offering Jio sim cards, prompting the company’s PR department to compare its popularity to Apple. By the end of December, Jio had signed up 72m users.

Rivals scrambled to respond, slashing their own tariffs in an attempt to stem the mass defections to Jio. The emerging price war is set to bring “tremendous pain for the entire sector in the near term, as it plays Santa to the consumers”, warns Rohit Chordia at Kotak Institutional Equities.

© Bloomberg

An indication of this pain came on Tuesday when Bharti Airtel reported a 55 per cent year-on-year fall in net profit for the last quarter of 2016. Idea Cellular had been due to report its results on Monday but postponed the announcement without explanation. Vodafone sounded a major warning in November when it wrote down the value of its Indian business by €6.3bn.

Airtel is seeking legal remedies against Jio: on February 1, a public tribunal will hear its claim that Jio’s data giveaway is “predatory” behaviour intended “solely to drive out competition”.

Jio, in turn, alleges that the incumbent operators have illegally restricted incoming calls from Jio customers, resulting in unusually large numbers of “call drops”.

Yet amid the acrimony, two rival executives say separately that Jio’s high-profile giveaway could turn out to be a lucrative new earnings driver for the whole industry, by galvanising demand for mobile data.

While there were 278m smartphones in India by March last year, fewer than half of these had a 3G or 4G data connection, according to analysts at CLSA, who expect the sector’s revenue from data services to grow by 30 per cent annually over the next two years.

Providing these services, however, will force operators to engage in a hugely costly upgrade of their networks. “They have no choice — it’s a question of survival now,” says Ankit Agarwal, head of the telecom business at Sterlite Technologies, which anticipates huge demand for its fibre cables as operators dramatically increase their infrastructure investment.

CLSA analysts in Mumbai predict that weaker players in the sector will fall by the wayside in this infrastructure spending war, accelerating a wave of consolidation that began last year and could eventually bring a recovery in margins for the survivors.

But even as it forces its peers to upend their business plans, Jio still faces questions over its own product, says Jayanth Kolla, co-founder of the consultancy Convergence Catalyst, warning that the call drops for which it blames competitors may stem mainly from teething problems with its own network.

He notes that Jio has entered uncharted territory by building a network entirely reliant on 4G — technology developed primarily for data services — to carry voice calls, without any underlying 2G or 3G systems to back it up.

Nonetheless, having invested more than half the market capitalisation of India’s second-biggest listed company in the new venture, industry analysts and executives agree that Mr Ambani is in the telecom sector to stay.

“He can’t get off, so he keeps doubling down,” says one former senior executive at a rival operator. “He can’t afford not to proclaim victory.”

Additional reporting by Dharmendra Ramji Gupta

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