October 19, 2017

Will Jio be the Game Changer ?

On 1st September, during the Reliance AGM meeting, Mr Mukesh Dhirubhai Ambani announced the launch date and tariffs of the much awaited Reliance Jio. The announcement created ripples across the financial and telecom world. Idea cellular and Bharti stocks dipped by 10.5% and 6.4% respectively. The Twitter, Whatsapp and Facebook chatterati was abuzz with the low data tariffs and free voice minutes.

After the launch announcement, many analysts have raised issues over the profitability of Reliance JIO operations and the stock market also punished Reliance stock by dropping it by 2.73%. But is it actually the case. Is Mr Ambani so naïve or an altruist that he will take a decision to distribute his hard earned dollars without having profitability in sight?

Much has been said about tariffs and if we compare the tariffs , then it is definitely lower than the current tariffs of existing Telecom service providers (TSP) but Reliance Jio is targeting higher ARPU customers. The EBIDTA of existing TSP’s is in the range of 32.4% to 37.4% which clearly shows that even if Reliance Jio takes a hit due to the discounted tariffs, it will ensure that they cover their operational cost.

The big point which is being missed is the digital ecosystem which Reliance is creating around their basic data services. We have seen massive enterprises being carved out of digital ecosystem such as Facebook, Twitter, Google, Amazon, etc having huge valuations. Reliance has launched multiple apps and has already seen downloads in the range of 5 MN and above for these apps.

Comparison of Apps launched by Reliance Jio:

Table

*Valuations taken from various internet portals

The example of developed countries proves, that as the internet/ smartphone penetration grows, the download and usage of apps also increases. Reliance Jio will create a huge retail channel to penetrate the market. It has already launched LYF smartphone and the market is growing at a CAGR of 50% since last two years. These two factors will further help it increase number of downloads/usage. So it’s a matter of time when these downloads will be in multi-millions thus bringing in millions of DAUs/ Billion page views/ Trillion messages. Considering the valuations of the competing apps and if Reliance Jio comes anywhere close to them then the valuation of Reliance Jio will be much more than what they have actually spent.

Apart from these apps its products/ services around Enterprises, Analytics, SwitchnWalk etc can be other valuation boosters.

Finally, the long term impact will depend on Reliance Jio managing the service quality which will help fulfill the Indian digital dream and make sense of huge costs incurred on the roll-out.

Disclaimer


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Author is Kavinder Pawahanee. Over 20 years of experience in Telecom, Technology, Gaming, and Advertising industry. Now a consultant.

Twitter: @kavin1411

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