Reliance Jio’s latest phone scheme — there have been so many since its launch last year that it’s tough to keep abreast — has been so popular that a staggering five million units were booked up between August 26 and August 28 by eager customers willing to slap down Rs 500 ($7.70) as a deposit.
Meanwhile, another 10 million await to eagerly get onto the rolls for the next lot.
What Jio is promising is this: the company is willing to give its customer a phone in lieu of a three year, interest-free, refundable deposit of Rs 1,500 ($23). That customer, paying Rs 153 per month ($2.35), can avail of something unheard of in India a little more than a year ago–free voice calls for life, half a GB of data per day and unlimited SMS.
However, recent reports suggest that India’s latest telecom entrant and possibly the biggest “startup” in the world is actually footing 40 percent of the bill for a phone that costs Rs 2,500 ($38) to assemble. This means that, according to Reuter’s math, Jio is prepared to dish out more than $150 million for every 10 million phones the company sells in the form of a subsidy. That’s a ridiculously large amount if you consider the 850 million individuals who are yet to own a mobile phone and who will be squarely in the crosshairs of a Jio salesperson.
Such is the scale of both Reliance’s gambit and the gargantuan market that is India, one that has soap makers to turbine manufacturers to phone makers salivating with anticipation and glee at the riches to be made.
To cater to this untapped 60 percent of the 1.2 billion population of mobile subscribers who have yet to use a phone, Jio has come up with a phone (called the ‘Jio Phone) that doesn’t look very dissimilar to a feature phone but in fact has 4G connectivity with VoLTE technology that can deliver voice, data, and text messages.
A nifty feature in this TV-mad country is the phone’s ability to connect to televisions, allowing users to stream movies and TV shows directly onto their idiot screens.
Now here comes the hard-to believe part of this scheme. If putting 10 million Jio phones in the hands of newbie rural and small town phone users costs $150 million, as Reuters has suggested, upping its user base to 300 million from its current estimated 130 million, which is what the company’s self-confessed target is, should set the company close to $3 billion, a figure that is hard to imagine any company dishing out for market share.
And yet, the Ambanis are not ordinary businessfolk. As legend has it, father Dhirubhai, the son of a schoolteacher from a small town in the state of Gujarat, made his first fortune when he somehow got to the Middle East — specifically, Aden, capital of Yemen — in where he secured a job as a petrol station attendant.
Soon after being promoted to manager, he realized that the local currency, the Yemeni Rial had a face value that was less than the inherent value of the silver that went into it. Dhirubhai snapped up as many Rials as he could get his hands on and coolly arbitraged the difference.
This modest fortune laid the bedrock for the polyester empire that was soon to follow which his elder son Mukesh has expanded into oil and gas and now, telecom and media. (A riveting book that chronicles Dhirubhai Ambanis life is an unauthorized biography, The Polyester Prince, written by former Economist journalist Hamish McDonald, and banned in India thanks to the influence wielded by the Ambanis.)
Is $3 billion worth spending on acquiring 200 million odd customers? “Data is the new oil,” Ambani said at a recent industry event in Daniel Plainview fashion, neatly encapsulating the new obsession of this petroleum magnate. Yet, the obsession comes with some cunning, some say devious, financial planning behind it.
For instance, when previous telecom operators bundled their services with a phone they would be forced to pay a 11 to 14 percent license fee imposed by the government (versus a pure handset purveyor who would not be levied this fee). Since Reliance is claiming a sale price of zero with its 3-year refundable deposit for their phone it may very well escape this not-inconsiderable sum of money.
Then, there is the matter of sales tax on the phones. Again, a zero sticker price means that it would avoid a further 12 percent GST on each phone sold, amounting to a loss of an astounding 180 crore or $30 million for every 10 million phones sold. Or, if it reaches 300 million customers a loss to the exchequer of over $500 million.
This is the kind of business acumen that make the Ambanis who they are.
Having driven down data prices by 90 percent and having rendered the one solidly profitable component of the telcom revenue pie free, namely voice — it accounts for 75 percent of the industry’s revenues — and having bought up influential media houses that include the CNBC news channel and an assortment of online and print publications (including the India edition of Forbes) it is hard not to see Mukesh Ambani’s ambitions to control content generation and delivery in a darker, Murdochian light. As one Indian journalist suggested me not so long ago, the current giveaways are just momentary concessions in a long and labyrinthine game of chess.
When Jio gets to its endgame and possesses the market share that it is gunning for, and when the industry is thoroughly consolidated (it is almost there as the smaller players have already been gobbled up by the large ones), it will be very hard to not envision prices inching their way up to pre-Jio levels.
And even if it doesn’t get to those levels, Jio will be earning cash from so many different revenue streams and controlling content generation and dissemination in so many different ways across channels that it is hard to not see the plan to build a market-dominating telecom company from scratch amidst furious competition as an audacious yet Orwellian stroke of genius.
Whether it gets there or not while servicing its humongous debt and by coaxing this soon-to-be-acquired cohort of rural and small town spenders to up their average revenue per user levels (ARPUs) from a paltry Rs 50 ($0.9) today to Rs 300 ($4.8) — its break even metric — remains to be seen.
PREVIOUS AND RELATED COVERAGE
Reliance Jio still has to woo existing customers away from tenacious biggies like Airtel and scrappy middleweights like Idea. However, that aside, it seems to have all the pieces in place in a remarkably well-thought out and brilliantly executed strategy.
Reports suggest the breach could be the largest experienced by an Indian organisation.
This News Credit Goes To >> Source link