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How does Reliance Jio plan to profit?

Tarun Mittal
21st Feb 2017
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India is home to the world's second largest mobile user base and the third highest number of internet users. Understandably, the telecom sector in the country is hyper-competitive, with multiple groups vying to capture the largest piece of the pie. Reliance Jio Infocomm Limited (or Jio for short) is the newest player to enter the competition, and it's not just winning the game but rewriting the rules altogether.

Reliance Jio's commercial launch in September 2016 sent shockwaves through the Indian telecom industry. The Mukesh Ambani-led company launched their services with an unbelievable inaugural offer — free 4G data, voice calls, and SMS for all its customers. Ambani announced that even after the conclusion of the trial period, Jio would never charge for voice calls and that its data rates would be among the lowest in the world.

Fearful of the uncontested domination such an offer would afford Jio (around 70 percent of the industry's revenues come from voice), India's biggest mobile network operators appealed its illegitimacy to the Telecom Regulatory Authority of India (TRAI). But TRAI found Jio's offer to be legal and instead levied massive fines on Bharti Airtel, Vodafone, and Idea Cellular for trying to undermine the Reliance Industries Limited (RIL) subsidiary by not providing sufficient points of interconnect to its SIM card users.

One question that seems to be on everyone's mind though, is how Jio will make a profit when their rates are so low as to defy belief. To answer this question, one needs to understand Mukesh Ambani's grand ambitions, not for the present, but the future.

The foundation

Reliance Jio was founded on Ambani's belief that mobile internet is the revolutionary technology of this century. And while it will undoubtedly undergo many transformations, the core technology will remain the same, and therein lies the crux of his plan.

Fuelled by an investment of Rs 1,50,000 crore and backed by partnerships with eight global carriers — British Telecom, Deutsche Telecom, Millicom, MTS, Orange, Rogers, TeliaSonera and Tim — Jio has successfully created the largest only 4G and LTE networks not only in India, but in the world. A 2,50,000 kilometres route of fibre optic cables and 90,000 eco-friendly 4G towers work to provide unmatchable 4G coverage in all of India's 22 telecom circles (call zones which differentiate between local and STD calls).

While all the existing network providers are using a modified 2G/3G infrastructure to provide 4G in India, Jio has set up a Greenfield network (created from scratch) that offers higher bandwidth and faster speeds. The Jio network is also future-proof and capable of offering 5G and 6G connectivity as and when the technology materialises.

Reliance Jio is also the first teleco to launch a ‘VoLTE-only’ (Voice over LTE) network in India. This technology eschews the fluctuations of the 2G/3G network in favour of high-speed data transfer which allows for more robust connectivity and clearer voice calls.

After establishing this infrastructure, Reliance Jio's next hurdle was acquiring customers. And they did it by offering the Indian population what they sorely needed: high-speed mobile internet that was affordable. Before the commercial launch of Jio, less than 15 percent of India had access to 4G connectivity, a figure the teleco wishes to push to a whopping 90 percent by the end of 2017.

Affordability and quality are the only things that make a person want to switch their mobile network. For the current network providers in India, the monthly average revenue per user (ARPU) is around Rs 150, and users who spend over Rs 250 per month are regarded as 'high value' customers. Jio's tariff plan, considering only those packs with 28 days validity, begins at Rs 149 and offers customers 0.3GB of 4G data (plus unlimited data at night) besides free voice calls, both local and STD. These rates are infinitesimal when compared to the ones charged by telecos like Airtel and Vodafone. And since there have been no complaints about quality, more and more people are making the switch over to Jio.

By leveraging the need for affordable internet in every one of India's numerous social strata, Jio has started dismantling other network providers with its foray into the market and recently hit a user base of 100 million.

All of RIL's efforts on Jio are part of a greater whole in which the company plans to achieve national, and international, domination in the field of mobile internet. And what they're doing now is laying the foundation on which they will build the industry's greatest monument.

The future

Immediate revenue is of no concern to Mukesh Ambani. The Reliance Jio endeavour is a big bet on the future, and the company's present aim is to establish the ideal eco-system for when that future arrives.

Despite having a massive user base, internet penetration and speed in India is woefully low when compared to other countries. Only about 24.3 percent of the Indian population accessed the internet through mobile phones in 2016. But the figure is expected to rise to 37.4 percent in 2021 as the Indian population, particularly in rural areas, becomes progressively ‘digital’.

As an increasing number of people will require mobile and internet connectivity in the coming decade, Reliance Jio will be in the prime position to capture the massive untapped market.

Jio's ambitions aren't limited exclusively to mobile internet. The company plans to rake in profits from its LYF brand smartphones, broadband internet offerings, and Jio mobile applications — the entire suite, which includes apps like Jio Music, Jio TV, Jio Cinema, and a digital wallet, will be charged as a Rs 15,000-per-year subscription. Reliance also plans to consolidate its ‘Digital India’ missive with the setting up of Jionet Wi-Fi hotspots in multiple cities — Mumbai, Kolkata, Surat, Ahmedabad, Indore, Mussoorie, and Lucknow are among the cities which currently feature these hotspots in select locations.

Global aspirations

Internet of Things (IoT) has been widely touted as one of the most promising technologies of the near future. Understanding the potential of this burgeoning sector, RIL in November entered into a partnership with US-based General Electric (GE) to enter the industrial IoT space.

The partnership, under which RIL will reportedly develop software applications for GE's Predix cloud platform, will provide IoT solutions to customers in various industries such as telecom, healthcare, oil and gas, and power among others. Driven by the industries' need for increasing operational efficiency and the widespread use of data analytics, RIL will generate vast new revenue streams not only in India, but around the world.

High risk high rewards

Mukesh Ambani's business philosophy is a simple one — ‘nothing ventured, nothing gained.’ He has recognised mobile internet to be the most profitable venture in the long run and has consequently invested considerable time and money to make RIL the foremost company in the sector.

RIL’s, and by extension Jio's, credo is founded on the principle that a business needs a purpose beyond just making profits. As Ambani told ET in an interview, “I believe that if you create societal value, if you create customer value and employee value, and if you focus on these, then shareholder and economic return is a by-product.”

And going by the current scenario, in which Reliance Jio is certainly creating societal and customer value, the company will very likely rake in monumental revenues in the future.

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