Business | Reliance Jio

Free speech

India’s mobile-phone operators get a daunting new rival

Ambani dials up the pressure
|MUMBAI

IN THE end it was even worse than they had feared. For months now, India’s dozen mobile-phone operators have been pondering just how aggressively Mukesh Ambani, the boss of Reliance Industries and India’s richest man, would gatecrash their market with the launch of Jio, his new 4G telecoms operation. They certainly expected the thousands of billboards adorned by Shah Rukh Khan, a ubiquitous Bollywood star. Heavily discounted prices were predictable, too. But the news that, from September 5th, anyone paying as little as 149 rupees ($2.20) a month would be able to make free phone calls and browse the internet a bit was a genuine shock. The share prices of rival firms tumbled.

Telecoms incumbents are right to worry. Reliance has been able to use billions in cash from its main oil and refining businesses to invest over $20 billion in the infrastructure required to deliver high-speed connectivity across India. And Mr Ambani understands the industry extremely well. He built a network from scratch in the early 2000s, although that firm eventually went to his younger brother, Anil, in 2005 after the pair fell out.

For the elder brother’s bet to pay off, Indians will need to continue flocking online at speed through their mobiles. Smartphones are in the early stages of becoming ubiquitous. Most of India’s nearly 400m internet users go online through them. But many people on small incomes use expensive data services sparingly, if at all, downloading content only when they have access to free Wi-Fi. New Jio customers will get as much internet as they want free of charge until the end of the year, and cheap access thereafter. Reliance is also promising free (for a time) access to Bollywood films and music.

The incumbents expected Jio’s data rates to be lower than what they charge now. Heavy data users will probably be able to roughly halve their bills. But the huge impact is on voice traffic, which makes up around 70% of operators’ revenue. What had been a gentle decline in phone bills as Indians moved to data (including to make calls over the internet) is now likely to be much steeper. India’s already low average revenue per user will probably fall by 10-15% over the next year, say analysts at Fitch, a ratings agency.

As for Reliance, it is said to have factored in at least two years of losses. Mr Ambani says he wants Jio to dash to 100m users, beyond the 70m-80m that most analysts think the firm will need to turn a profit. Only 5% of phones used in India now can access 4G, so most of Jio’s customers will be people upgrading their handsets. Reaching 100m quickly will require roughly one in three new smartphones to be from Jio.

If Mr Ambani can pull it off, it would leave little for the 12 other networks. A round of consolidation could result. That might not be good news for the government. A spectrum auction later this month had been expected to raise 5.6 trillion rupees—more than corporation tax brings in over an entire year. Prospective bidders may now ask whether spending that kind of cash is worth it. Many of them are indebted and making low returns.

If other telecoms firms aren’t making good profits, how can Reliance do so? Rivals argue that Mr Ambani will probably put up data tariffs for all his new customers as soon as the freebie offer ends. But privately they concede he is doing what they once did. They invested stacks of cash in the latest technology, tolerated low prices and hoped that enormous volumes would get the figures to add up. The formula may work if Indians continue flocking to the internet. Whatever happens, India’s march online has been given a big shove.

This article appeared in the Business section of the print edition under the headline "Free speech"

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