Mukesh Ambani’s $16 billion 4G disruption set to curb tariffs in India

Mukesh Ambani will fire up a broadband network that’s set to shake up the nation’s voice and data industry


Mukesh Ambani said last week his $16 billion Reliance Jio Infocomm Ltd service will begin commercial operations around December. Photo: Pradeep Gaur/Mint
Mukesh Ambani said last week his $16 billion Reliance Jio Infocomm Ltd service will begin commercial operations around December. Photo: Pradeep Gaur/Mint

Mumbai: The countdown to one of the boldest rollouts of fourth-generation (4G) wireless technology has begun: by year’s end, India’s richest man will fire up a broadband network that’s set to shake up the nation’s voice and data industry.

Mukesh Ambani said last week his $16 billion Reliance Jio Infocomm Ltd service will begin commercial operations around December. That throws down the gauntlet to top incumbents Bharti Airtel Ltd, Vodafone Group Plc and Idea Cellular Ltd, and risks squeezing others such as sibling Anil Ambani’s Reliance Communications Ltd, Tata Teleservices Ltd and Telenor ASA.

“The disruption is going to come from Jio pushing for faster 4G adoption,” said Jimmy Chen, an analyst at Sanford C. Bernstein and Co. in Hong Kong. “To encourage that, it will have to make data a lot cheaper. The margins of incumbents are definitely going to come under pressure.”

Jio has bought spectrum since 2010 to step into the crowded and indebted wireless industry in India, which has more than 900 million subscribers and one of the fastest-growing smartphone markets. While there’s a six-month window for Bharti and Vodafone to improve their high-speed products, Standard and Poor’s said smaller operators may get further marginalized.

“The bigger telecom players in India are anyway gaining market share,” said Mehul Sukkawala, an analyst at Standard and Poor’s in Singapore. “After six to 12 months, as Jio scales up, it might end up becoming a big boys’ fight. At some point, the smaller operators may begin to question their own business model, go slow in expanding or even put their hands up.”

Billion offline

Ambani last week signalled monthly pricing for some of Jio’s services could be as little as Rs.300 ($5 dollars) to Rs.500, with 4G handsets for less than Rs.4,000, as he seeks to tap demand in India’s 1.25 billion population.

He’ll need to prove the high-speed technology Jio is based on works to grab a significant share of the market. The network is currently undergoing tests before operations start.

Jio is a unit of Reliance Industries Ltd, which is stepping beyond its traditional oil and gas operations to tap growing voice and data demand in India. Reliance Communications was handed to Anil Ambani in the wake of a family feud in 2005.

Bharti provides an example of the climb in borrowings in the industry. It’s total debt has risen more than six times to Rs.66,370 crore in the five years to March 2015, according to data compiled by Bloomberg.

Reliance Industries gained 1.2% as of 11:21 am in Mumbai. It’s up about 1% in 2015, compared with the S&P BSE Sensex’s 3% drop.

Morgan Stanley recently added Reliance Industries to its India “focus list,” saying investors seem to be giving no value to the telecommunications business.

Jio needs to scale up rapidly to get positive cash flow, Sanford C Bernstein analysts including Chris Lane wrote last month. If Jio brings down pricing, and if India relaxes rules for spectrum trading and sharing, mergers and acquisitions in the telecommunications sector are possible, they said. Bloomberg

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