Reliance Jio will kill 30+ businesses in the next 5-10 years
Reliance Jio is in the headlines for the last few weeks. Free, unlimited data and voice till 2016 end, the huge crowd at Reliance digital stores, blame-game from the existing telecom players and what not. I am surprised to find that maximum analysts are expressing concern for the future of existing telecom players like Airtel, Idea etc. My prediction is not only incumbent telcos; Reliance Jio is going to become a serious threat to 30+ Indian business across 4-5 sectors.
Before going into the details, let’s clear a misconception – Reliance Jio is not a telecom company. It is an internet based media company; telecom is an integral part of it.
To keep the things simple, let’s have a look how much you are spending today for various media based offering and how the picture will change after five years –
|Service/Description||Your spending in 2016||Within 2020|
|Mobile (Local/STD Voice + SMS) –||Rs. 100/month (Airtel/Vodafone/Idea etc)||
All in one
|Mobile Data 3G/4G(1GB/month) –||Rs. 200-250/month (Airtel/Vodafone/Idea etc)|
|Home Broadband/Datacard – (Unlimited/10GB/month)||Rs. 1000/month (Local regional player/telecom players)|
|Cable TV/D2H –||Rs. 250-500/month (Local player or Dish Tv,Videocon,Tata Sky etc)|
|Magazine/Newspaper (Tech/fashion/business)-||Rs. 100-200/month|
|Cloud Storage –||Rs. 0-200/month|
|Movie Download/Watching –||Rs. 0 (Youtube, pirated downloads etc)|
|News Reading apps –||Rs. 0 (ET,Times of India etc)|
|Mobile Wallets/Quick pay –||Rs. 0 (Freecharge,Mobikwik,Paytm etc)|
|Others (Music/Movie Subscription,antivirus etc)||Rs. 0-200/month (Quickheal, Hotstar,ganna etc)|
|Total||Rs. 1650 -2500/month||Rs. 1000-1200/month|
Now let’s have a look how Reliance Jio will offer all those things in their existing platform/offerings. Download the following apps and experience yourself-
- Jio TV – You can enjoy all the television channels live (including regional channels) in HD and SD version. You can also watch past programs. By using HDMI cable or Chromecast, you can enjoy the entire content in your existing big screen Television or desktop monitor. 5-10 years down the line, there will be a day while many users will ditch the existing local cable operators and D2H service providers like Sun TV, Dish TV, Videocon D2H, Tata Sky, Airtel D2H etc and shift to the bundled offering of Reliance Jio.
- Jio Music – Apart from international, Hindi songs, it has a pretty good collection of regional songs in HD quality (320kbps) which is important to dominant in the Indian market. I am using Jio Music over the last few weeks and got addicted so much that I deleted all other music apps and stored songs in my iPhone! Jio Music is similar to Apple’s imusic store with the focus in the Indian market. 5 years down the line existing players like ganna.com, Saavn, Hungama, etc will either struggle to survive or merge with Jio.
- Jio Cinema – You can watch HD quality movies/video songs etc across any device. Both the free and premium contents are available. There will be a day while many movies will release simultaneously with the cinema hall in Jio Cinema and users will end up paying for it. Moreover, short films, art films those can’t release in the theater due to censorship issue will be released on this platform. Existing players like Hotstar, erosnow.com will either struggle or merge their operation with Jio.
- Jio Xpressnews – Another great platform to access any kind of news of your choice. It fetches news from all national and regional players like Times of India Group, HT media group, Network 18 group, even from websites like bseindia.com, forbes.com etc. User engagement will reduce in standalone apps like ET, Times of India, Mint etc.
- Jio Mags- A huge collection of magazines ranging from technology, business, Auto sector, Bollywood, entertainment etc.
- Jio Chat – Similar offerings like WhatsApp. Although it can’t affect the existing market leader Whatsapp, but Jio users will communicate themselves through this platform as it will be bundled with all the offerings.
- Jio Wallet – You can pay/transfer money to anyone, pay in physical stores and obviously do mobile/D2H recharge, bill payment etc. In the near future, Jio will surely offer cashback/discounts for recharging Jio numbers through Jio wallet so that user engagement will remain at the maximum level. Existing players like Mobikwik, Freecharge, Oxygen wallet, Citrus wallet will struggle. (Paytm won’t be affected due to differential offering)
- Jio Drive – Cloud storage and back-up platform for Jio users similar like Dropbox, icloud storage etc. Upto a certain limit will be free and after that chargeable.
- Jio Security – To compliment all other bundled offering, Jio Security, an anti-virus application is bundled with others. Reliance won’t charge for it separately but as it is bundled with all other offerings so users will naturally ditch other 3rd party applications.
Strong Moat (Competitive advantages of Reliance Jio from the other players) –
Jio has an edge than all other existing companies like telecom players, regional cable operators, mobile wallet players etc. Within the next 5-10 years, Reliance Jio will build a very strong competitive advantage by the following ways –
Bundled Offering of Reliance Jio –
The primary differentiating factor of Reliance Jio is the all-in-one, bundled offering. Right now, you are paying separately for mobile data, voice calls, cable TV (or D2H) home broadband, etc and using free service for Music, Movies, Chat, mobile wallet, news and many others. Jio will say, come to me, I will offer all those at lower cost with better quality (bundled with Data offering) on a single platform. This is the USP of Reliance Jio.
Customer lock-in –
Starting from mobile handsets (LYF model), mobile networks (voice+data) to all the related service like music, movies, live TV, wallet,magazine, news etc, once you use all those on a single platform, it would be very hard to shift to a different platform. Apple created an ecosystem to keep engaging iPhone users. Google created an ecosystem by offering email, search, news, vidoes on a single/related platform. Reliance Jio has the similar plan. You can’t use Jio TV, Jio music etc on Airtel (or other) network. LYF handsets with bundled Jio SIM won’t allow the installation of Google Play store rather force users to download apps from LYF store. 5-10 years down the line Reliance Jio will have the lowest customer churning rate. Jio won’t let you go to other providers once you remain in their platform for 1 year.
Nobody can compete with Reliance Jio –
Reliance had built the entire ecosystem from the last 7 years (2010-2016) with an investment of Rs.1,50,000 crores without having a single rupees profit/income. No business entity in India can have such deep pocket for investing such huge amount without any income from it. Existing telecom players like Airtel, Vodafone can’t build such vast ecosystem because it will take at least 4-5 years and huge investment whereas Airtel, Vodafone, Idea etc are already strugling with huge debt burden. Thus, it is virtually impossible to build such a vast ecosystem for any Indian players. (Who will dare to challenge Reliance?)
Regarding the individual apps (like Jio Music, Jio Drive etc), Indian entrepreneurs will surely come up with the better, technologically advanced and more user-friendly alternatives of Jio Chat, Jio Drive or Jio Music etc. However, it is a matter of few days for Reliance to acquire the new start-up that can compete with any Jio offerings. Reliance can spend any amount of money to acquire any player (or start-up) in India.
Think about it, while Facebook realized that Whatsapp is becoming the threat for its Messenger app, while more and more users engaged in the Whatsapp then Facebook simply acquired it to keep the dominance.(For same reason Google acquired Youtube). Similarly, in the near future if any Indian entrepreneurs build the better platform similar to the offering of Jio, then Reliance will acquire it to maintain its dominant position.
Game-changing steps from Mukesh Ambani and Jio team-
- Offering all the premium apps (Jio TV, Jio Music and all) for free until December 2017 – The intention is clear. Ambani wants maximum user engagements so that once the free period is over, the addition of usage keep promoting users to spend money on it. (Similar like Ola, Uber offered first free ride from friend’s referral to speed up customer acquisition)
- Allocating 5,000 crore venture capital fund for entrepreneurs – Again a master plan, Ambani is inviting young entrepreneurs to develop technologically advanced platform in his Jio ecosystem. More and more youngsters develop applications compatible with LYF stores, more will be the user engagement to kill any competitor. Today Android operating system is dominating the smartphone market just because years ago Google opened it up for all. The huge variant of applications and flexibility in Android OS easily killed other OS like Blackberry, Microsoft Lumia etc. Reliance is replicating this model in India.
- Offering free voice calls is another master plan to attract the maximum number of users in the shortest possible of time. Today a telecom operator is earning Rs. 200-250/month from a user for voice calls+SMS+mobile data. After 5-6 years, Reliance Jio will earn 5 times more from the same user for the bundled offering. (I had already illustrated the same in the Spending Pattern Chart) This is called intelligent business. Attract the customer with “Free Offers” and then make him spending 5 times more for the better offering. Hats off to Mr. Ambani and your team!
Suicidal attempt from the existing telecom players –
It would be the suicidal attempt for the existing telecom players if they engage in the price war and keep reducing their price to attract customers. Existing telecom players like Airtel, Vodafone, Idea, Aircel, MTS, Videocon etc have already huge debt burden and struggling to generate free cash flow. Reducing price will put pressure on their already stretched balance sheet. They need to understand that they are not the deep pocket player like Reliance that can spend 1,50,000 crores without having a single rupees income. How long can they compete by only reducing the price? My prediction says only 3 telecom company will survive (Jio, Airtel, and Vodafone) and the rest will either merge or simply blown away. (I am not considering BSNL because they are already in ICU and government will keep wasting public money on them). The only way to retain/attract customers for the existing telcos is by offering something new (technical term Product differentiation) or by presenting the old wine in the new bottle. Only Airtel took few such steps (Advertisement campaign like “Open Network”, long term data package by paying Rs.1498 upfront etc)
Reliance Jio – Financial Prediction over the next 5-10 years
- Reliance Jio will have 30-35 Crores active users within 2017 end, overtaking the current leader Airtel. Mukesh Ambani already instructed 10 crores subscribers in the shortest possible time. I think 10 crores is easily achievable within the next 1-2 months. After that Reliance can do (and will do) anything like further reducing price/extra free offering to overtake Airtel within 2017 end.
- All those premium apps will be available for free of cost till 2017 end. After 3-4 years 30 crores Reliance Jio users will spend Rs. 1000/month (average), i.e 12,000/year. It will translate into the revenue of close to 3.6 Lac Crores (INR). (I have excluded the revenue from cloud storage service, content (movie) releasing revenue, etc) During FY16 Reliance Industries generated the revenue of 2.76 Lac Crores from its existing Petrochem and Retail business.
- It will sound absurd today or it is difficult to believe still I want to mention that the contribution from Jio alone will translate more than double revenue for Reliance Industries within the next 5-6 years. Nobody can stop it.
Reliance Industries – Financial Prediction for the next 5-10 years –
- Within the next 5-10 years, revenue will become at least 2-3 times for the combined Reliance Industries. As there won’t be huge capex requirement so profit is expected to become 4 times than the current level.
- Huge cash flow from the existing Petrochem business will also ensure higher dividend payout.
- Currently, the stock of Reliance Industries is commanding the P.E (Price to Earning Ratio) of around 11. It will command at least 20+ P.E within 2020.
- To create more value, Reliance will de-merge the business of Jio once it starts contributing significantly to the bottomline.
- Mukesh Ambani will place himself within the top 5 richest persons in the world within the next 10 years. (Currently ranked at 36 in the Forbes list of World’s richest person)
Many individuals/entities will continue to hate/criticize/defame Mukesh Ambani (Reliance) but nobody can stop him! Reliance Jio is going to bring revolutionary changes in India.
Another interesting point, LIC (Life Insurance Corporation) had investment in Reliance shares worth around 30,000 crores at current valuation. The entire 30,000 crores is the public money i.e insurance premium from public. (Your LIC premium might also include in it!) Reliance is the largest taxpaying entity of our country.(Roughly 25,000 crores+ including excise duty, VAT, ST, income tax etc). Thus if anything happens to Reliance the entire country might collapse! This is why they can only dare using the full page photo of our Prime Minister in the Jio commercial advertisement!
Disclaimer – The author (Prasenjit Paul) is SEBI registered Research Analyst having registration number as INH300003157 and engaged in the business of equity advisory through this website. At the time of writing this article the author is not holding any shares of Reliance Industries in his personal capacity, neither he traded in the last 30 days. The views expressed here are personal and independent in nature. Queries related to the stock of Reliance Industries won’t be addressed in this segment. Readers are advised to consider this article for the educational purpose only.