An Analysis of Reliance Jio 4G Launch

Mr. Mukesh Ambani, Chairman and Managing Director, Reliance Industries Ltd. unveiled plans for its 4^th Generation (4G) services at the Company’s 41^st AGM here on 12^th June, 2015. Mr. Ambani revealed that commercial operations for Jio will start by December, 2015. High speed data will allow for instant messaging, live TV, movies on demand, news, streaming music on the go. Reliance Jio Infocomm which has taken over 5 years to materialize and has gobbled up over US$ 13 billion (₹80,000 crore) in infrastructure investments is one of the most-awaited launch and is expected to leapfrog Indian telecom sector by 10-15 years. 

A Price-war is sure to ensue in the world’s 2^nd largest mobile services market after China, where Reliance Jio will take on incumbents like Airtel and Vodafone for market share. Rational pricing would be very critical for Jio in order to gain market share in a highly price-sensitive market. A similar strategy was adopted by the late Mr. Dhirubhai Ambani some 15 years ago when he disrupted the telecom market by making call rates as cheap as post cards. From what has been mentioned, Mr. Mukesh Ambani is also expected to adopt a similar strategy as Jio would offer 4G services at half the price of similar existing data packs (₹300-500 against the existing prices of ₹1000 for data packs). Low pricing strategy would help build awareness and also increase the overall internet penetration in urban and rural areas of India. This also blends well with the Prime Minister’s Digital India theme to bring most services online.

However, Reliance Jio is expected to be a pure play data services at the outset.  There is a conspicuous absence of any voice-based strategy in the Jio launch announcements.  Voice contributes to close to 85% of the industry’s revenues(4 billion voice minutes per day) and it would be interesting to see if Reliance JIo’s data-dominant offerings appeal to the mass market. According to KPMG, pure-play data services may not attract the requisite customer base as the current urban telecom penetration is over 100% and rural penetration over 50%. According to BofA-ML, dual SIM smart-phones could be attract potential customers – one SIM for voice calls other for Jio’s high speed data offerings. Reliance Jio will have to bring much more to the table than just 4G at affordable rates to lure away customers from the incumbent carriers.

Apart from the data-only worries, Rel-Jio may also have to enter into spectrum trading or sharing agreements with telecos to overcome gaps in its pan-India network (Rel-Jio holds license in 14 of 22 circles in the 1800 MHz spectrum and Pan-India spectrum in 2300MHz spectrum). Also, with investments over ₹80,000 crore in this space and 100% pan-India coverage expected only after 3 years, (80% coverage by Dec. 2015) it would be interesting to see when Reliance Jio Infocomm turns profitable.

          -    Rohin Jacob

       SIMSREE Finance Forum

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