I first heard of Mukesh Ambani, the Chairman of Reliance Industries Ltd. (RIL), in early 2004–a couple of years after he launched Reliance Communications (RCOM) for his terminally-ill father. Reliance had struggled to enter the mobile telecoms market in India in the mid-1990s, when the government first auctioned spectrum. But in 2002 it obtained, through administrative process, a nationwide 800 MHz license for CDMA. This increased the number of players in the market and shook up the regulatory regime, given the lower price of spectrum and lack of competition for the licenses Reliance acquired. In 2005, after litigation and several years of fighting between GSM operators and their CDMA peers, Reliance paid a revised but moderate price of $400 mn for a nationwide license. Meanwhile the personal relationship between the Ambani brothers, Mukesh and Anil, had deteriorated badly following the 2002 death of their father and company founder Dhirubhai, and they agreed to split the business empire between them–with Anil getting Reliance Communications although Mukesh had been at its helm.
But now, more than a decade later, Mukesh Ambani is back in telecoms. And not just back but once again disrupting the market. For the past several years, he has planned the launch of Reliance Jio (RJio), an LTE-only operator in the second-largest telecoms market in the world. Back in 2002 India’s market was nascent. Now, with more than 50% of the population being unique mobile subscribers, India has a much more mature market. Which necessitates RJio employing disruptive tactics if it is to gain a foothold. While most mobile players in India earn no more than 25% of their revenues from data with at least 75% still from voice, RJio’s “free” voice service is part of an overall data package with voice transmitted as data. Subscribe to an RJio data package and you get a voice app as part of the deal. On net calls have been praised; it’s only when subscribers talk to people on rivals’ traditional voice networks that problems start: quality and interconnect availability. But the incumbents are starting to really feel the pain with RJio having managed to add 73 million subscribers in its first four months of commercial operation; it seems on track for 100 million by March 2017.
J. S. Deepak, the thoughtful Secretary of India’s Department of Telecommunications (DoT), came up with a wonderful, very Indian metaphor to define RJio’s entry: “It is like a crowded train, so people already inside resist, but then it settles down.” It hasn’t settled down quite yet, but mergers and acquisitions in the industry are moving faster. It’s like people just leaving the train to make space for the big bear’s entry. Telenor India is looking for a merger partner, while Vodafone India is trying to entice Idea Cellular into a complex merger that would create the number one player in the market. Other deals are rumoured too.
India’s fragmented market structure is overdue for consolidation. Three years ago TechPolis predicted 13 operators turning into six. The market now could consolidate around four poles: Vodafone/Idea, Bharti Airtel, Reliance Communications and Reliance Jio (although with the Ambani brothers now having mitigated their personal differences and agreed to share towers, RCom and RJio could be working more with than against each other). This is a better market structure for the huge capex investments required to roll out LTE, a cheaper and better technology to provide broadband for all. As long as RJio maintains its initial competitive approach, and market rationality in terms of return on investment (ROI) prevails across the board, the long-term future of telecoms in India is bright for both consumers and investors. But there will continue to be considerable short-term pain for incumbents while the market consolidates to allow focused investments from a handful of large operators aiming to directly compete with RJio in data.