3 Reasons Why Mukesh Ambani’s Reliance Jio Plans Are A Little Too Ambitious For His Own Good
Mukesh Ambani today made extremely ambitious announcements for his Reliance Jio venture, for which he has already spent Rs 34,000cr till date. He said that in addition to launching the commercial operations of Jio’s 4G services, a host of other new data-driven initiatives will be launched during the course of this financial year. While Ambani stopped short of stating a clear capital expenditure plan for the current fiscal, he minced no words while trying to establish the gigantism of his telecom/data venture plans.
If it’s Reliance, it’s got to be big, has been the long standing norm when it came to India’s largest private company’s business aspirations. Be it its prized and now trouble-hit petrochemical business or the overtly ambitious retail plans. However, we at Business Insider feel a closer fact check is in order this time around; simply because Ambani has possessed the 4G fully paid up license for 5 years now, and roll-out of the commercial operations, after much delay, has now been slated for the end of the calender year 2015.
So, what are Mukesh Ambani’s chances of success with Jio? Will this turn out to be the hiccup that his retail plans turned into. Remember, the time when Mukesh Ambani earmarked Rs 25,000 crore for retail, and then we all know what happened to Reliance Fresh (the flagship retail format) along with other smaller tie-ups he had entered into to expand his retail footprint.
1) For one, the biggest and the most fundamental hurdle is that Jio is a 4G-based service. Mukesh Ambani’s dreams of lightning-speed data transfer might have to wait just a bit; the delay over the past few years in its 4G services roll-out have not been without reason. As telecom analyst and expert Mukesh Uppal explains, ” The 4G eco system is still weak. There is neither the infrastructure nor evidence of high demand for its services right now. Imagine, right now, even the 3G data services aren’t delivering the kind of revenues that operators would have hoped for.” Reliance is the only telecom firm that has invested significant sums in 4G spectrum infrastructure, including setting up its own tower systems. The rest, including market leader Airtel are still trying to rise above the cost pressures incurred post the 3G and the recent 2G spectrum auctions.
2) Then there is the very essential reason and the very basis of any business-demand. Reliance needs to source consumers for its 4G services. The target audience will have to be people who already use data on a regular basis, and in a market like India, data-consuming clientele is a very small minority yet. As telecom expert Uppal explains, ” The question is will people be willing to pay the premium for 4G services? Empirical data suggests that currently 4G data demand isn’t on an uptake.” In fact, this would depend on many an external factors including smartphone penetration into the rural markets as well as ensuring that cost-effectiveness of the 4G services.
3) Last, but as they say, not the least is the question of unhindered service. And as we, the country folks know by now, Reliance isn’t the most service-friendly company to enter the ‘services sector’. As Uppal puts it, “Reliance has yet to prove itself decisively in the ‘services’ segment.”
What we can say with a great degree of confidence, however, is that Reliance has very, very, deep pockets. And, a company with such resources can never go kaput, but they may never reach market leadership status as has been exemplified by its retail venture.