Billionaire industrialist Mukesh Ambani tried to pull a Steve Jobs on Thursday, announcing the launch of the much-awaited Jio telephone network that he hopes will completely disrupt the sector. Ambani's inaugural offer, coming after months of delays for the network, is nothing short of audacious: Unlimited free voice calls all over the country and rock-bottom prices for data. According to Ambani, Jio's network will cover 90% of the Indian population by March next year.
"With Jio we aim to enrich the life of every Indian," Ambani said at Reliance's Annual General Meeting in Mumbai, which was also broadcast live on news channels. "Demand for digital oxygen, data, is increasing... Mission of Reliance Jio is to take India from data shortage to data abundance. Jio makes India the highest quality, lowest price data market in the world."
Indeed, Ambani made it very clear what Jio is focused on. He intends to make no money off what was once the mobile networks' mainstay: voice calls. Jio instead is offering no charges for voice, anywhere in the country. Ambani even promised that this would never change.
Instead, the focus is on data, with charges starting at Rs 50 per GB. In comparison, major network providers like Airtel and Vodafone provide 3G/4G data at Rs 199 per GB. Reliance’s ridiculously low pricing for data is bound to impact the industry which has been under turmoil for quite some time, especially after Airtel and Idea recently reported lower revenues per megabyte of data consumed.
Reliance has effectively sounded the bugle for a data price war. The stocks of major players like Airtel and Idea reflected this:
The announcement came on the same day that news emerged of the Justice AP Shah panel pointing out Reliance Industries' having made "unfair gains" from an ONGC gas field in the KG basin, which probably explains why RIL's shares are also down.
The bleed, however, is not going to be limited to stocks today. Ambani said Jio will launch services from September 5 and will keep all services free till December 31. If that wasn’t enough, Ambani also announced that the company will provide unlimited night time data to users by utilising idle network capacity.
Presuming the network holds up and Jio can actually match up to its promises, the other networks will have to keep up or risk losing their customers. Currently, about 10% of the total mobile owning population subscribes to 3G or 4G services, according to the Hindu, but the number is likely to go up if Reliance’s plan of providing cheap smartphones takes off.
Jio's launch did not come without difficulties. Mukesh Ambani was behind the undivided Reliance group's foray into telecom in 2002, in an effort that was supposed to be a game-changer in its time but was equally criticised for being over-ambitious. It ultimately fell prey to the family feud, and was hived off into his brother's Anil Dhirubhai Ambani Group.
RIL's attempts to return to the sector, on the basis of massive investments in telecom infrastructure and content, also caused much heartburn with the incumbents in the sector. Most recently, the Cellular Operators Association of India which represents companies like Idea, Vodafone, Airtel even approached the Prime Minister’s Office requesting an intervention in the Jio launch as it alleged that Reliance has 2-3 million users on it network even though the network claimed to be in a “test-phase”.
While Jio denied these claims, the COAI alleges that the regulatory authorities such as the Telecom Regulatory Authority of India have been allowing Jio to bypass regulations in a manner that “point[s] to a pattern of discrimination against the existing mobile operators.” Questions were also raised about the manner in which Reliance managed to buy 4G spectrum, as the Economic and Political Weekly reported.
Despite these hiccups, Ambani's audacious announcement immediately made waves on social media.
Getting past the euphoria of the massively disruptive launch though, will bring up questions of profitability and financial viability in a market that has been under the gun. While the strategy of low-cost pricing is a well-known measure to attract customers in a crowded market, Jio’s scale and extent of freebies would mean that its parent Reliance will have to shell out a lot of money from its pocket to retain and attract customers before it can raise prices and compete in the industry.
The Mint pointed out that Jio already has more than Rs 32,500 crore in long-term debt and other liabilities topping Rs 58,000 crore as of March. Clearly Mukesh Ambani has made a massive bet with Jio. Will it live up to its name?