India’s Richest Man to Upend Wireless Sector by Year End

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Mukesh Ambani

Reliance Industries Ltd. Chairman Photographer: Pankaj Nangia/Bloomberg

The countdown to one of the boldest rollouts of fourth-generation wireless technology has begun: by the end of 2015, 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 on June 12 his $16 billion Reliance Jio Infocomm Ltd. service will begin commercial operations around December, throwing down the gauntlet to top incumbents Bharti Airtel Ltd. and Vodafone Group Plc as well as a tail of smaller players. Sibling Anil Ambani’s Reliance Communications Ltd. said Monday it’s in merger talks with Sistema Shyam TeleServices Ltd.

“The disruption is going to come from Jio pushing for faster 4G adoption,” said Jimmy Chen, an analyst at Sanford C Bernstein & 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 & 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 & 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.”

Jio Pricing

Ambani last week signaled monthly pricing for some of Jio’s services could be as little as 300 rupees ($5 dollars) to 500 rupees, with 4G handsets for less than 4,000 rupees, 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.

Reliance Communications said today it’s in exclusive talks with Sistema on a potential merger of their Indian telecommunications businesses through a stock swap, while adding there’s no guarantee of any transaction happening.

Mergers

Jio needs to scale up rapidly to get positive cash flow, Sanford C Bernstein analysts including Chris Lane wrote last month. Jio’s entry could catalyze mergers and acquisitions in the telecommunications sector, they said.

Other operators in India include Idea Cellular Ltd., Tata Teleservices Ltd. and Telenor ASA.

Bharti provides an example of the climb in borrowings in the industry. It’s total debt has risen more than six times to 663.7 billion rupees in the five years to March 2015, according to data compiled by Bloomberg.

Morgan Stanley recently added Reliance Industries to its India “focus list,” saying investors seem to be giving no value to the telecommunications business. The stock closed 1.3 percent higher in Mumbai and is up about 1 percent in 2015, bucking the S&P BSE Sensex’s 3 percent drop.

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