Mukesh Ambani, Chairman of Reliance Industries, stunned the world today when he announced the launch of his second coming into telecoms with Reliance Jio. Everything–-voice, video, music and content–-will be free from the launch date of 5 September till 31 December, but even after that voice calls will be free altogether.
India will no longer have to pay to talk on the mobile phone. It will pay to surf and do other things on the mobile internet, but not just talk. It is difficult to see how rival operators can charge for voice calls once Jio sets the bar low at zero for post-paid users. And even data prices will hit rock-bottom: just 5 paise per MB (or ₹50 per GB). Jio tariffs will range from S to XXXL, with monthly prices ranging from ₹149 to ₹4,999, with the lower end getting you 0.3 GB of data and the higher end 75 GB.
In one day, Ambani has changed the nature of the game in telecoms and mobile internet from voice to data.
That Reliance Jio's entry will be hugely disruptive in the Indian telecoms-to-digital business would be an understatement. Ambani, being the last entrant to the business, has simply bet the farm of dominating the mobile internet and Digital India.
Like in his first coming with Reliance Infocomm in 2002, Ambani's preferred strategy is not to be first, but the best through the use of scale and disruptive ideas. He didn't join the telecom rush that began in 1994 till eight years later, and even then only after policy was tweaked to his advantage. His first entry erased the distinction between fixed-line and mobile licensing.
Another element of his strategy is price. Whatever he does, whether it is selling petrochemicals or telecom services, his primary entry strategy is low price, made possible by huge scale, and his retention strategy is to make sure those who come in for "cheap" stay on for the other benefits.
But his price gambit did not pay off the last time. In 2002, Ambani chose what he thought was a winning technology, Code Division Multiple Access (CDMA), because it was more spectrum efficient. His foray ran into the sand after his split with brother Anil forced him to part with Reliance Infocomm, and CDMA itself turned out to be a loser against industry standard, GSM. Despite dropping call and STD rates, Anil was forced to make an expensive shift to GSM, and now offers both, CDMA and GSM services. Mukesh Ambani's original technology bet went wrong.
Will he be luckier this time?
Once again, he has made mistakes on the way. In 2010, he acquired Infotel Broadband, which bought BWA spectrum in 22 circles at the 3G auction for more than ₹12,800 crore. This investment turned out to be a dud till Ambani bought other pieces of expensive spectrum to create a viable voice-cum-data network nationally. In other words, the spectrum he bought for a huge price six years ago was partly a waste. It will only now come into use, and that too only in combination with other spectrum he bought in other bands.
If there is one reason Reliance Jio has been so delayed between announced intentions and actual rollout of broadband and data services, it is because Ambani has no scope for error this time, given the scale of his bets.
Consider the size of his bets and the scale of the transformation he is making both in the industry and within Reliance:
Biggest investment in history: As services get rolled out across India in stages, Ambani's initial investment in Jio will cross ₹1,50,000 crore, mostly spent in buying spectrum, laying optic fibre across 2.5 lakh km, and building the transmission towers to ensure that data download speeds are to international standards. Jio is already in 29 states, 18,000 cities and one lakh villages. "Our roadmap is to have 100 percent national coverage within the next three years," he said at the last Reliance AGM.
From commodities to customer: For a company that has made money largely in the regulated markets of petroleum and petrochemicals, Ambani is now turning Reliance inside out to focus on a 100 percent customer facing business like the mobile internet. Reliance Retail was his first major transformational move from commodities (sold largely business-to-business) to retail customers, but Jio raises that orientation 100-fold.
From low-risk to high-risk: In all his previous attempts, Ambani minimised risk by opting for scale, helped by friendly policies. Now the field is more level, and success depends not in pleasing babus and netas, but on acquiring, keeping and delighting customers in an industry where the average customer churn rate is 2% a month. That is, 24% of customers switch mobile operators every year. Put another way, 24% of the industry's customers are always new and looking for the next best deal.
Nandan Nilekani, in a recent presentation, pointed out that switching operators is now very easy. Some 80% of Indian mobiles have dual Sims, and only one out of every 20 customers acquired is actually a new customer. Nineteen are deserters from other companies.
For the initial customer acquisition target of around 100 million, Ambani will thus spend several hundreds of crores, but even this will get him only up to the No 5 spot in Indian telecom–-behind Bharti Airtel (254 million users), Vodafone (198 million), Idea (175 million) and brother Anil Ambani's Reliance Communications (101 million). If Ambani gets his 100 million customers in two or years, he will upset at least one of the top four seeds in the industry for sure, for his gains will be the industry's loss. At 1,033 million users, India's mobile user base is now ready for cannibalisation. Alternately, Ambani will have to acquire one of the also-rans (Tata DoCoMo with 59 million users, Aircel with 88 million or Telenor with 53 million).
Ambani badly needs those numbers, for without at least 100 million he will not have the clout and revenues to justify his huge bets.
From equity to debt: Addressing his shareholders today, Ambani said that he had invested more in the last five years than in the previous 35. This shows up in Reliance's debt profile. From being a zero net debt company a few years ago (which means Reliance's growth was largely equity- and profits-led), as at the end of June 2016, Reliance's debts outweighed cash holdings by a factor of two: debts totalled ₹1,86,692 crore and cash assets were at ₹90,812 crore.
So there is little doubt that Ambani has bet the farm (or firm) on his dream to dominate Digital India.
"Jio is one of the largest transformational digital initiatives anywhere in the world... It really is the world's biggest start-up," Ambani said last March.
With ₹1,50,000 crore at stake, he can say that again. It is Jio ya maro for Reliance. His rivals will be thinking that too. This is one bet Ambani cannot afford to lose.
Also on HuffPost India.