How Reliance’s Low-Cost Mobile Service Is Transforming India
When Byju Raveendran launched his eponymous education business in 2011, he took a decidedly analog approach to promote it. He spoke at packed cricket stadiums across India and traveled overseas to pitch his unique learning method to the Indian diaspora.
Aspiring middle-class parents flocked to hear his inspirational talks, where he told crowds that he learned English from listening to cricket commentary. “You don’t need to be a specialist in everything,” he told students. “Capitalize on your strength — everybody has strengths.”
Despite the popularity of his speeches, though, he found it impossible to build his business to the scale he wanted.
Eight years later, Raveendran no longer has that problem. Byju’s, as his company is known, is now an online educational juggernaut with a market value of about $4 billion, making it the most valuable educational app anywhere, investors say. It has been downloaded more than 30 million times and has 2.3 million paying customers, many of them poor or living in rural areas.
“Tech and the media are enabling education,” Raveendran says in an interview at his company’s Bangalore headquarters.
It is unlikely that Raveendran’s spectacular business transformation would have happened without Reliance Jio, India’s low-cost telecoms platform. Starting from a 2010 acquisition by Mukesh Ambani, the scion of India’s Reliance Group, Jio has invested roughly $37 billion to make smartphones and mobile data cheap enough for almost all Indians.
“Jio has helped discover a new way of learning,” Raveendran adds. “Before Jio, we couldn’t scale. Now everyone is building on Jio.”
Byju’s is one of scores of young tech companies in Bangalore whose existence has been made possible by Jio. Whether in education, e-commerce, fintech, media and even a new generation of nonprofit organizations, hundreds of young companies owe their existence to Jio.
Once known simply as the richest man in India, Ambani is now known for the dramatic way he has reinvented his family’s business in recent years. He has shifted Reliance Industries from heavy industrial operations such as energy and petrochemicals to softer businesses including telecoms, media content and retail.
In the process, Ambani is also reshaping India. Since its launch in 2015 and its first sales the following year, Jio has started to reduce the yawning disparities between city and countryside, privilege and poverty, connections and capability.
While his rise in business may have been built on controversy, today Ambani is perhaps the only national champion and true visionary the country has.
“Lots of baggage of the past has been erased by the efforts of the last five years,” said one venture capitalist in Mumbai. “He is our answer to Elon Musk. He is the only one in India willing to take a moonshot.”
Since Ambani entered the telecoms business, revenues in the Indian mobile market have shrunk by 35% in just over two years, thanks almost exclusively to the low prices and six months of free service offered by Jio, according to data from UBS. That is because Reliance has far deeper pockets than any of its rivals and has used its cash flow from petrochemicals and energy to subsidize newer initiatives under Jio, said Rohit Prasad, a professor of economics at MDI in Gurgaon.
Whether Ambani and his shareholders will be the ultimate beneficiaries of his expensive new initiative, the money Ambani has invested in Jio will have huge multiplier effects on overall prosperity for India. These may prove far more important than how many more crores will accrue to Reliance and its shareholders. And while rivals such as Tata Group may gripe, the fact is that none of the other business titans of India has ever dreamed as big as Mukesh Ambani.
“We think RIL [Reliance Industries Ltd.] has the potential to become a quadruple play (not seen anywhere globally) by bundling connectivity, carriage, content and commerce to gain a higher share of consumers’ wallet,” noted UBS analyst Gautam Chhaochharia. “RIL can lead in telecom and media and gain significant share in retail/e-commerce.”
To students of the age of the U.S. robber barons, Ambani may appear to be India’s answer to Andrew Carnegie or John D. Rockefeller — though the 61-year-old businessman’s story is far from over. Will he be remembered by others — rightfully or not — as a ruthless businessman whose wealth was amassed by means that didn’t always bear close scrutiny? Or will he be portrayed by history as a great benefactor?
Jio suggests the latter will prove to be the case.
In education, kids living in villages where teachers often never show up for classes can now use their Jio smartphones to study online. Offspring of the elite — who are sent to expensive cram schools to prepare for entrance exams — will now face competition from kids who have studied online in the hinterlands, thanks to both Jio and Byju’s.
“Today, drivers for [ride-sharing companies] Ola and Uber may be watching porn on their Jio phones,” said the head of one boutique investment bank in Mumbai. “But tomorrow their kids will be learning on their Jio phones.”
What’s good for Reliance
Ambani inherited Reliance Industries from his father, the legendary — and controversial — Dhirubhai Ambani. In the years when Dhirubhai, and later Mukesh, were building up Reliance Industries, both were more feared than respected.
The Reliance website proudly proclaims that “what is good for India is good for Reliance.” But “what is good for Reliance” often comes at the expense of his rivals — and, critics charge, a healthy competitive landscape.
One indication of the dominance of the Ambani empire: Reliance accounts for almost 9% of all the country’s export earnings. Its market cap, at about $125 billion, is the largest of any in the Nifty 50, the benchmark stock market index for the Indian equity market, and accounts for almost 10% of its total weight. The Reliance Industries empire accounts for 200,000 jobs directly and another 1 million indirectly.
The petrochemical plants at the core of the business empire are world-class — and are among the few industrial businesses with true scale in India. But Ambani decided several years ago that data was the new oil — an observation that was not the cliche that it has become today.
“Mukesh always thinks big,” said Raveendran. “Nobody is as audacious.”
At the beginning, the biggest advantage Jio had was its low cost of capital. Reliance used the cash flow from its traditional businesses to subsidize cheap prices to potential subscribers — and to kill off weaker competitors that had to rely on expensive bank loans.
A changing regulatory landscape also seemed to favor the telecoms upstart. Shortly after Jio was launched, government regulators reduced the fees that one telecoms company charges another when their customers use the others’ service. Since Jio was the newcomer and had fewer customers, it had to pay more to its rivals than it received from them. But it became the biggest beneficiary when the government cut permissible fees by two-thirds.
At first, Bharti Airtel and Vodafone Idea, Jio’s largest competitors, rejoiced as Jio killed off their pesky rivals. “They were complacent,” said Prasad of MDI. “They welcomed the consolidation Jio brought. But then, Jio started to eat into their subscriber base. Now that the connections have become a commodity, everyone has to move value-added.”
As damaging as Jio has been to its telecom rivals, it is helping smaller companies flourish. Fintech companies that lend to India’s aspiring middle class are among the beneficiaries.
Fintech startup Capital Float has already loaned out over $1 billion to consumers, said Sashank Rishyasringa, the company’s co-founder. Rishyasringa, who provides credit both to online vendors and their clients, also relies on Jio — just as his potential customers do.
“Our digital middle class is very small. There is a $1 trillion credit gap in this country. The gap is affordability, and we are bridging that gap,” Rishyasringa said. “Today we can finance both customers and merchants on Amazon and other websites. The cost of intermediation is crashing because of technology and innovation.”
The result is a virtuous circle. For example, Rishyasringa tells the story of a small cellphone dealer in Rajasthan who sells phones online through Amazon. When he went to the Amazon website, this local merchant found an ad for Capital Float, and then applied for and received a 10 lakh ($14,500) credit line from the company. He is now the largest distributor of phones in the region and has grown his business to 10 crore ($1.45 million).
Another small shopkeeper in the same state went into the business of sending remittances from migrant workers to their relatives in the hinterlands. With the help of working capital from Rishyasringa, he now advances his clients money for their train tickets back home. Capital Float has branched out to financing health care services ranging from fertility treatments to cataract operations.
“We won’t partner with you”
Ambani is still more of a businessman than a philanthropist. Reliance assists companies, including startups, only up to a point. When a potential new initiative appears to hold out lucrative prospects, the idea of partnership is anathema to Reliance.
For example, one fintech company approached Reliance Money, offering to work together on the lending platform that this Bangalore-based company had built. “They said to us, if lending is big, we will do it ourselves,” this entrepreneur recalled. “We won’t partner with you — we will kill you.”
To cite another example, there have been numerous rumors of talks between Reliance and Alibaba Group Holding, in which the Chinese e-commerce giant would possibly purchase a stake in Reliance Retail.
In its home market of China, Alibaba plays in both online and offline retail (the latter through its Hema chain of stores) — a model which Reliance Retail is in the process of recreating in India. Alibaba also has a big minority stake in Paytm Mall in India, but that is widely considered an e-commerce initiative that has not been particularly successful.
However, bankers in Mumbai say the chance of an alliance between the two is very slight. Ambani needs neither money nor distribution from Alibaba — or from anyone else.
Ambani recently predicted that in coming years, the retail operations would contribute as much to earnings as his petrochemical and energy operations, which together accounted for the bulk of his $66 billion in earnings for the last fiscal year.
“Its success could be built on an ecosystem or bundling strategy, and home-court advantage, similar to Alibaba’s success in China, beyond explicit or implicit policy support,” UBS analysts noted in a report entitled “Can RIL evolve into India’s Amazon/Alibaba/Walmart?”
Meanwhile, the two dominant e-commerce giants in India are controlled by foreign companies, in the form of Amazon and Walmart, which last year acquired 77% of India’s Flipkart for $16 billion.
So when the Indian government recently adopted protectionist measures to keep the supply chain in the hands of small local suppliers, Ambani, as the local champion, was the biggest beneficiary of the new rules. It is a measure of Ambani’s perceived power that these measures were immediately attributed to his influence over government policies.
Ambani is also expanding further into media content, which could become increasingly important to the Jio ecosystem. He already controls Network 18, which operates a mix of news and entertainment channels including CNBC, MTV and Nickelodeon in India and last fall bought majority stakes in two cable television networks.
Today, the chatter on Dalal Street — Mumbai’s equivalent to Tokyo’s Marunouchi — concerns the sale of a significant stake in Zee Entertainment Enterprises, a heavily indebted media company with interests in television, movie studios and music, whose chairman, Subhash Chandra, posted his shares as collateral for loans.
In the preliminary search for expressions of interest, almost all the companies that considered bidding were foreign. But, suddenly, the Reliance name has surfaced, according to bankers, as Reliance increasingly seeks content to put through Jio’s pipes.
To be sure, Reliance faces challenges. Bharti Airtel and Vodafone Idea are no longer complacent about the threat Jio poses and are fighting back. Regulatory issues, such as considerations of privacy and net neutrality, will also become more significant.
“But Reliance has always been good at managing regulators,” added Prasad of MDI. “They can and are meeting these challenges.”
Reliance Jio Profile
Only a few years ago, billboards in India advertising mobile services invariably included “callback” phone numbers. It was a workaround to avoid cellphone expenses: Potential customers would call the given number, promptly hang up and then wait for the company’s callback to avoid the charge.
In India, affordability has always been paramount for any company hoping for market share. Being cheap is at the heart of Jio’s strategy.
A Jio monthly plan begins at about $1. The cost of voice calls has plummeted for its subscribers and data is almost free. To keep up, competitors have been forced to try to match its ultralow charges. “Cheap data is no longer just a Jio story,” says Rohit Prasad, professor of economics at Management Development Institute, Gurgaon.
Reliance was a latecomer to a telecoms scene dominated by Bharti Airtel and Vodafone Idea. But by starting out with 4G technology — which uses the same back-end technology for both voice and data — Jio could afford to offer its data dirt-cheap. A typical Jio customer churns through nearly 11 gigabytes of data and 800 minutes of voice calls each month.
And the 4G smartphones it offers subscribers are priced to appeal to the mass market; they are stripped-down, low-end and basic. But they do the job. The basic JioPhone is available to customers who put down a deposit of 1,500 rupees, which is refundable after three years. Customers can also trade in an old phone for a JioPhone for 501 rupees.―Nikkei Asian Review
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