Reliance Jio 4G launch: Mukesh Ambani set to change telecom industry dynamics

Reliance Jio had been trending in the news for quite some time, mostly owing to controversies revolving around its 4G testing. The company had widely rolled out its services for free without commercially launching. Raising eyebrows wherever it went, it became a raging success in destroying the user base of other operators in a large percentage. Furthermore, Reliance made it personal by asking its employees to discontinue their AirTel corporate plans. The blow was more to the ego than to the bank balance. It set Airtel back by Rs. 50 crore annually.

The official Reliance Jio 4G launch was announced on 1st September, at the company’s Annual General meeting. Since the test launch, Reliance had made it clear that it is going to take the market by storm with cheap rates but, all hell broke loose when they actually announced their data and calling packs. Competitors like Airtel and Vodafone had already started cutting down rates.

Reliance Jio 4G launch fuels Price War

The Reliance Jio 4G tariffs have been made public, now, and the results have been entertaining, to say the least. The company now offers about three times the data for the same prices that its counterparts used to, never mind the unlimited data and free calling at night.

An interesting point to be noted is that the network can be used only in VoLTE devices, whereas most of the close to half a billion users are still on LTE devices.

The other big companies have already started cutting rates too. This may be good news for the users, not so much for an industry that continues to wither under a pile of debt. This is not likely to reduce with the upcoming airwave auctions, even for Reliance that seems to be in the driver’s seat at the moment. One might wonder if Mukesh Ambani included an estimated figure of the upcoming auction in his $20 billion bet on creating a digital empire.

Call rates in India are one of the lowest in the world. But owing to immense usage especially on video buffering and streaming, the data tariffs are off the charts compared to most western markets. More about debts, later.

The idea behind such low rates seems to be to monopolize the market. Previously, Reliance Jio 4G was supposed to be launched in 2014 with an estimated investment of $15 billion (as opposed to the current $20 billion). Apparently, the Mukesh Ambani group decided to be a little more patient and focus on this launch by focusing on quality and marketing. The result has truly been astounding. The queues outside authorized Reliance stores haven’t dried up. As a result, Bharti Airtel, Idea Cellular and even Reliance Communication (an Anil Ambani undertaking) have lost huge market capitalization. Airtel has lost Rs. 8,455 crore, Idea has lost Rs. 3,528 crore and Reliance Communication lost Rs. 1,182 crore in mcap.

As far as the other smaller operators are concerned, their continued existence in the country largely depends on the amount of spectrum they are able to secure.

Reliance Jio Investment: What, where and why

The Commerce Ministry filings say that in addition to an in-house investment of Rs. 29,000 crores, Reliance Jio has a long-term debt of Rs. 32,500 crores. As of March 2016, their other liabilities exceeded Rs. 58,000 crore. The total debt of Airtel is expected to be around Rs. 83,000 crore and Idea Cellular owes Rs. 38,750 crore.

The majority of this investment by the company has gone towards making Jio’s biggest campus outside Mumbai. It consists of a cluster of glass buildings, lawns, etc. The level of commitment to this project is quite clear. The campus has 15,000 employees for Jio alone.

An Infracircle report suggests that the 700MHz band in question here offers one of the most efficient 4G services. Since the smartphone ecosystem is not very evolved in India, Jio has taken it upon itself to provide for it. The VoLTE smartphone offerings from the likes of Samsung have been clubbed with Reliance Jio 4G SIMs (which are free of cost) and had started selling since long before the 4G services were even launched. This initiative in itself has the potential to produce a fatal blow to the other companies.

The Ambani sons

It is clear that both divisions of the company are run on the principles of the late Dhirubhai Ambani, but his son has come a long way since the days of teaching himself how to code and running a nascent telecom operations company. His son, the Brown University graduate, is now the chief of the strategy of Jio.