Understanding Jio

Posted on October 7, 2017  /  0 Comments

Once before, the Ambanis (Reliance) disrupted the Indian telecom market, and in the process changed the dynamics of markets across the developing world. This was the “fixed mobility” stunt they pulled off around 2000, when CDMA phones were sold as being usable only within defined areas. But they were actually mobile phones and the company made it possible for the phones to be used across multiple areas. On unintended (or perhaps intended) consequence was to drive down the costs of CDMA network equipment and handsets dramatically. CDMA, which did make sense for Sri Lanka in 1999, made eminent sense in 2003. We let them in, and wiped off the waiting list.

Now, Mukesh Ambani has bet USD 25 billion to disrupt the market again. If he succeeds, telecom markets worldwide will be impacted.

Jio’s own financial position is hard to gauge. Its accounts are not separated from those of Reliance, whose profits generated in petrochemicals and oil exploration and drilling are funding the telecoms push. But even the most bullish analysts are struggling to figure out how Jio can provide a meaningful return to shareholders. Assuming it can double its existing customer base, it will still have sunk around $100 to acquire each new subscriber.

Investors are clearly impressed. They trust that Reliance’s increasing control over the fast-growing market for data will eventually allow it to raise prices. The firm’s shares are up by over 50% so far this year, having been flat for most of the past decade. At 60, Mr Ambani is staking his legacy on his new venture, the only major part of the Reliance empire he has created himself rather than inherited. Whatever he has in mind with Jio, he is not done yet.

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