Mukesh Ambani is out to conquer his competitors. Reliance Jio, Ambani’s telecom venture is up against incumbent rivals such as Bharti Airtel, Vodafone and Idea Cellular.
Ambani is India’s richest man, and his bets are big -- be it petrochemicals, retail or hydrocarbons -- and telecom is not different. He wants to change the way India uses the internet, by offering high-speed internet services at ultra low cost.
For that, he has already invested Rs 1,71,000 crore (almost $25 billion) into the telecom venture to build India’s first fourth-generation (4G) only telecom infrastructure to provide high-speed internet. On Monday, he announced that Rel Jio will raise another Rs 30,000 crore through a right issue, which the company will use to lay additional optical fibre cable (OFC) and expand existing network.
“Reliance plans to spend Rs 30,000 through 2017-18 to enhance network coverage to over 90% from current 70%,” Avishek Datta, analyst with equity research firm Prabhudas Lilladher, wrote in his report.
OFC is critical for high-speed internet. It connects one telecom tower -- which transmit air waves used for wireless connectivity -- to the other, through cables.
A part of the money will also be used to continue funding its free internet services through, which has been a reason for regulatory battle beween Ambani and the other telecom operators. It is also committed to offer free voice calls to its users for life.
British telecom operator Vodafone Group plc has decided to write down the value of its Indian entity. It is also fighting a legal battle against Rel Jio.
Sunil Mittal, chairman and managing director of Bharti Enterprise, owners of Bharti Airtel, said that Rel Jio’s free services has started “unfair competition”. “If someone offers anything for free, it impacts the whole industry,” Mittal added.
Airtel has urged the national telecom tribunal to put an end to Rel Jio’s free basics that it is impacting the telecom industry’s health. The tribunal has asked Telecom Regulatory Authority of India to come to conclusion on the matter in “reasonable time”. The matter will be heard on February 1.
By offering free services, Rel Jio has already acquired 72 million subscribers, and is adding six lakh new ones every day, the company claims.
Rel Jio’s free offers has already triggered a price war in country. Airtel is offering Rs 9,000 of free 4G data to new users. Airtel has slashed its data prices by two-third.
Idea, too, is offering multiple schemes to data users across bands.
Ambani has a history of disrupting the business through massive price cuts and discounts.
When Reliance Communications was part of the undivided Reliance Group, built by Ambani’s father Dhirubhai, it started India’s first telecom price war in 2002. Its famous Monsoon Hungama offer mobile phones a device for masses. Ambani was at the helm of the telecom business.
Competitors, including Airtel, were forced to slash prices, as they did this time.
Analysts, however, remain worried about Rel Jio’s return on investment. “The company will raise Rs 30,000 crore through preference shares. It is very difficult to ascertain returns on these investments,” Satish Mishra and Deepak Kolhe writes in their HDFC Securities report.
Ambani isn’t worried, neither is he done, yet. He wants to achieve 100 million users by March 2017 -- that’s when he plans to start charging users. Still, it will be cheaper than other, he told during Jio’s launch in September -- Rs 50 for a GB of data.