MUKESH AMBANI'S BIG BALANCING ACT

TELECOM RELIANCE
BY T. SURENDAR
APRIL 5, 2016
Reliances refining and petrochem businesses are on a roll, but Jio, its much-anticipated 4G
mobile service, has been beset with doubts. Can Ambani secure itand his own reputation as the
torchbearer of his fathers legacy?
In the 2006 thriller Don, Shah Rukh Khans titular character reflects: A few things in life are
beyond profit-and-loss calculations. You just have to do them. Khan, the brand ambassador of
Reliance Jio, Mukesh Ambanis big telecom bet, may well have foretold the billionaires current
state of mind. Jios fourth-generation (4G) mobile network, hailed as a potential game changer in
Indias telecom sector, has cost Ambani Rs 1.5 lakh crore and is yet to bring in a rupee in
revenue. It has missed several launch deadlines since Ambani acquired spectrum six years ago.

There are serious questions about its viability given competitors like Airtel and Vodafone are
entrenched deep in the market. But none of that has stopped Ambani from throwing his might
behind the venture with the urgency of a make-or-break personal mission.

Although Jio has been at the heart of intense speculation, because, well, its an Ambani project,
little is known about its inner workings. Reliance Industries (RIL) remains as reticent as ever. No
RIL executive, past or present, will discuss Jio on record because of non-disclosure agreements
or simply for fear of the boss. But based on the accounts of several insiders who spoke on the
condition of anonymity, Fortune India pieced together a picture of just how high the stakes are
for the countrys richest man.

For starters, since the beginning of the year, Ambani has been spending a lot more time in RILs
sprawling digs in Navi Mumbai. Three days a week, he helicopters from his 27-storey home
overlooking south Mumbai to the 100-acre Reliance Corporate Park, the companys headquarters
since 2009. Earlier, he only visited on Wednesdays. After touching down, he heads straight to the
7th floor of block TC22, Jios base of operations. He doesnt have a private cabin in the new
open office designed by his twin children Akash and Isha, who are being eased into the family
business. Typically, he flits between glass-walled meeting rooms, where passels of executives
spend hours dissecting feedback from Jios much-hyped beta launch on RIL founder Dhirubhai

Ambanis 83rd birth anniversary in Decemberwhen Khan unveiled the service exclusively for
RILs employees. He leaves office late at night in an armoured brown S-Class Mercedes, as
choppers are not allowed to land in Mumbai after 5 p.m.
The gruelling regime, and the decision to test the service internally, even if it meant yet again
deferring a full-blown launch, indicate that Ambani isnt leaving anything to chance. Most
telecom companies would have launched a half-baked product and improved it on the go.
Ambani, however, wants to hit the market with something stupendous on day one, says a senior
RIL executive.
That doesnt mean Ambani is happy for Jio to amble on. Colleagues who have known him for
over a decade say he seems edgier. A few months ago, he lambasted executives from a top global
consultancy because he felt their revenue projections for Jio were unacceptably low, according to
a person who works at the firm. A veteran executive at RILs flagship refinery recently received a
rollicking for failing to implement some suggestions. His lips quiver when he gets angry, say
those who have witnessed a bout of Ambanis rage.
Jio occupies a delicate place in the Ambani family. The groups original telco, Reliance
Infocomm (now Reliance Communications or RCom), went to Mukeshs younger brother Anil in
a bitter split nearly a decade ago. But Jio reunited the two with one common goal: ruling Indian
telecom. In 2013, the brothers got together to share optical fibre networks and tower
infrastructure. Then this January, they agreed to share 4G spectrum. (A more prosaic version:
Anils Rs 37,150 crore debt load made him pliant to the handshake, while Mukesh realised
access to RComs assets would beef up Jio.)
With enormous headroom for growth in mobile Internetresearch firm Strategy Analytics says
India is poised to become the worlds largest smartphone market after China by 20174G is the
next big thing. Data usage will continue to surge as smartphone uptake increases, says Hemant
Joshi, Deloitte Indias technology, media, and telecom practice leader. There is huge
opportunity for data revenues, which over the medium-to-long term will equal voice revenues,
he adds.
But Jio is more than just a new revenue stream and fraternal bonhomie for Ambani. It is a chance
for him to prove himself as an institution builderhe called Jio a startup at an event organised
by the Federation of Indian Chambers of Commerce and Industry (FICCI) days before we went
to press. RIL derives its heft predominantly from the old economy; a slick telecom business
could change that.
Also at stake is Ambanis reputation as the torchbearer of his fathers legacy. It was Dhirubhai
Ambani who first outlined a vision for cheap and widely available mobile and data services.
Make the tools of information and communication available to people at an affordable cost.
They will overcome the handicaps of illiteracy and lack of mobility, Dhirubhai had said in 1999
according to RComs website. But he passed away months before the company started operations

in 2002, and RCom never really attained the heights he would have wanted. With Jio, Ambani
has the opportunity to rectify this. If all goes to plan, Jio can also make Ambani the face of the
governments Digital India juggernaut, which echoes Dhirubhais vision. [Jio] is one of the
largest transformational greenfield digital initiatives anywhere in the world, Ambani said almost
on cue at the FICCI event.
With a pan-India 4G licence, Ambani says Jio will cover 70% of India from the day it goes live.
It has quietly installed more than 90,000 towers and over 150,000 km of optic fibre cable. In
some cities, such as Mumbai, the company took care to complete all due diligence. It has more
than 21,000 files logged with the local municipal body. But in other places, it set up towers
before all permissions came through. Says an executive involved with the process: We may end
up paying a small penalty, but at least it wont hold up the network.
Industry observers say the sense of desperation hasnt come a day too soon. China is putting
nearly 120 million km of optic fibre on the ground every year, we are far behind, says Anand
Agarwal, CEO of Sterlite Technologies, a global provider of transmission solutions for the
telecom and power sectors. India is starved of data capacity, Agarwal adds. The success of Jio
could help India catch up.
Jio has ingredients which can make its telecom venture ... profitable, hence surprise positively.
Its spectrum portfolio and fibre reach is formidable compared to existing incumbents. Its infra
sharing deals with RCom, coupled with lower network costs, can help it deliver better margins of
over 40%, says Morgan Stanley.
The problem: Ambanis recent underwhelming track record. While his father built Indias largest
private company from scratch, most of Ambanis new projects over the past decade have
stuttered. RILs oil exploration and gas field development business has bled money, after talks
with the government to resolve a longstanding dispute on gas pricing hit an impasse. It also faces
a penalty of more than Rs 11,000 crore for pumping out gas from a field belonging to state-run
Oil and Natural Gas Corporation (ONGC) in the KG-D6 basin in Andhra Pradesh, though the
company has challenged this.
Ambanis retail venture too ran into unexpected opposition from state governments. While
Reliance Retail turned in a profit last year, upstart e-retailer Flipkart is on course to overtake its
revenue after merely four years in business. His other ambitious initiatives, like farm-to-fork and
building SEZs, have faded into oblivion. Success with Jio will mean the first successful
consumer-facing Ambani venture.
As recently as October, RILs stock threatened to mimic the slide in the aftermath of the 2008
financial crisis. For a brief period last year, Ambani lost his long-held No. 1 position on Indias
billionaire list to Sun Pharmaceuticals founder and managing director Dilip Shanghvi.

Meanwhile, RILs refining and petrochem businesses have stood tall. Improved efficiency and
capacities are helping boost profitabilityanalysts expect RILs profits to increase by 18% to
$4.7 billion by April 2017. Ambani has pumped in another Rs 1 lakh crore in the businesses,
taking the total outlay to Rs 2 lakh crore in five years. Barclays pegs additional cash flow from
the ongoing expansions in refining and petrochem at $4 billion a year.
In an earlier interview, Ambani had told me Dhirubhai always wanted to commit five years
earnings before interest, taxes, depreciation, and amortisation in a new business. The current
spending fits this model. However, theres another possible explanation for the massive
investment: Ambani knows his cash cow has to be kept in good health to offset the soaring tab of
Jio. Its almost as if RIL has balanced investments in two businessesone to generate cash and
the other to burn it, says an analyst.
THE INDIAN TELECOM INDUSTRY is unrecognisable from the time the Ambanis first
ventured into it. Airtel, Indias largest telco, had less than 10 million customers; it is now closing
in on 250 million. Calls were expensive at more than Rs 2 per minute, while data usage was
almost non-existent. In a marketing blitz, Ambani slashed call prices and offered colour handsets
at throwaway rates. The move rattled competition. A lot of things have changed since then.
Competitors have got the ability to scale. When Sunil Mittal could afford only one or two roadcutting machines, RIL bought 200. Now Airtel is no pushover, says an RIL executive, who
earlier held senior positions in telcos across the world.
Airtel has a sizeable lead, having launched 4G way before the others, in 2012. But with Ambani
as the challenger, it cannot get complacent. In November, it unveiled Project Leap, a Rs 60,000
crore bluperint for upgrading networks in the next three years. Last month, it acquired
Videocons telecom assets for Rs 4,428 crore. Vodafone also plans to spend Rs 20,000 crore in
the next three years. In February, it launched 4G services in Mumbai, its fifth circle, in the
presence of Maharashtras chief minister Devendra Fadnavis, who said he was a satisfied
customer. In the next six months, we will have most of our large markets covered, says CEO
Sunil Sood. We have already made 4G available in circles which account for 30% of industry
revenues and 50% of [our] data revenues. The No. 3 player Idea Cellular fell behind and its
stock slumped some 40%, but it recently unveiled capex plans of Rs 7, 500 crore for this year to
expand 4G services, which currently cover 10 circles.
Says a telecom analyst with a foreign bank, who downgraded Idea: It looks like the big players
had written off Jio and then suddenly realised that a lot was happening on the ground.
Central to all this is a scramble for dominance over lucrative data revenues. TRAI reports that the
average revenue per user (ARPU) from a wireless telecom user was Rs 122 per month last
September. In contrast, Airtel, Vodafone, and Idea generated data ARPU ranging from about Rs
140 to Rs 190.

The stage is set for a brutal price war. In January, Airtel reportedly cut 4G tariffs by 40% in some
circles, offering 10 GB of 4G data for Rs 847 from Rs 1,347 earlier. Vodafone is more expensive:
In a circle like Kerala, Vodafone customers pay Rs 849 for 5 GB of 4G data. People in the know
of Jios data plans say it is likely to woo customers with 80 GB of data for Rs 800 per month;
this would include unlimited voice calls and text messages, meaning that customers wouldnt
have to worry about separate tariffs for calls or messages. Ambani also claims that Jios speeds
will be 40 to 80 times the current average. The company has completed several pilots, including
in Lucknow, Indore, Mussourie, and Ahmedabad.
Not everyone is convinced. It will be tough for players, old or new, to cut each others revenues
and survive, says Prashant Singhal, head of EYs telecom practice. In other words, players
cannot push prices further down for either voice or data as there will be no business case left [if
they do so].
According to estimates, Jio will need revenue of at least $4 billion to $5 billion to cover
operating and interest costs once it is launched nationally. This translates to 100 million
customers spending an average of Rs 4,000 per yearwhich is exactly Ambanis initial target.
However, attracting new customers in hordes will be a challenge. To join the Jio network,
customers would need smartphones compatible with Voice over Long Term Evolution (VoLTE)
technology. Indians buy about 8 million smartphones a month, per Bengaluru-based research and
consultancy firm Convergence Catalyst, but the bulk of them are not 4G-ready. Since Jio cannot
push customers to change handsets right away, it plans to offer broadband dongles with cheap
data packages. The idea is to give customers a taste of the superior Jio network, priming them to
eventually switch allegiance from existing mobile service providers.
But top-end postpaid customers tend to be loyal and may not be swayed by slimmer bills. (Airtel
and Vodafone together control the bulk of 100 million such customers.) The chronic delays in
Jios launch could make it even tougher for it to lure away customers. In our recent meetings
with industry participants, a consistent view coming out is (of) risks of Jios commercial launch
being pushed to December 2016, says Bank of America-Merrill Lynch.
Business historian Gita Piramal adds that Ambani would also need to reckon with the nascent
regulatory climate in telecom. Ambani is a courageous man because he is willing to take risks
in a field that is changing globally almost by the week, she says. However, the jury is out as
regulators and customers are still grappling with disruptive trends, such as the coming together
of banking and telecom.
Ambanis reading of the evolution of telecom in India will be vital. When Reliance Infocomm
was launched, Ambani plumped for CDMA, even though GSM was more prevalent around the
world. GSM was cheaper, but CDMA was more efficient in carrying data as well as calls.
Ambani reckoned this would give the company the upper hand as data consumption expanded.
However, Anil did not pursue the plan aggressively after taking over.

With Jio too, Ambani is thinking very differently. Most telecom networks in the world have
technology that has evolved from 2G to 3G to 4G. The rollout of 4G has been gradual, depending
on how willing customers are to pay for higher-speed data. In contrast, Ambani has plunged
directly into 4G. This may not have been the initial plan, but it makes perfect sense given that
infrastructure to accommodate 2G and 3G would have cost between $1 billion and $2 billon.
Moreover, that would have taken away a chunk of scarce and expensive spectrum. By focussing
on 4G, the most advanced technology today (though the industry is already abuzz with
speculation on 5G), Ambani has taken out such distractions.
During the course of this story, Fortune India spoke to several Reliance employees across the
country using their Jio mobiles. The calls connected fine. Some users report patches of poor
connectivity, which is unavoidable even with established networks like Airtel or Vodafone.
But ensuring a reliable network is hygiene. The larger game plan in 4G is to build a closed
ecosystem of products and services that can help the service provider control the entire gamut of
a smartphone users activitiesfrom making phone calls and watching movies to social media
and shopping. Jio, for instance, has built half-a-dozen data centres and developed apps like Jio
Chat and Jio Money, a tie-up with a payment bank. It also has Jio Drive, a cloud storage
platform, Jio Beats for music, and Jio Play for television content. There are also myriad
complementary devices: set-top boxes that can be connected to its network to broadcast
television channels, 4G-enabled handsets, and so on.
These offerings are not unique. Airtel for instance has a payments bank licence and has been
running an aggressive campaign to promote Wynk, its music and movie-streaming service. But
this is where Ambanis years of heavy investments in acquiring media propertiesand his sheer
staying powercould make the difference. Consider the controlling stake he bought in
Network18 for Rs 4,500 crore in 2014. The Network18 buy gives Ambani the flexibility to
beam content directly to mobile devices when Jio launches. It provides him direct access to the
networks several million captive viewers, says a telecom and media consultant with a Delhibased consultancy firm.
IN ANY OTHER COMPANY, an endeavour of this scale would involve a platoon of senior
managers with clearly defined roles. Ambani has put together a crack teambut he can be a
trying boss. Many seasoned execs have found it hard to adapt to his style. He is known to read
and absorb even the most technical and jargon-heavy material. Sometimes he does this overnight,
making snappy presentations the next day.
Then there are murmurs about micro-management. Nikhil Rungta, hired from Google to head
Jios marketing, left after Ambanis wife Nita and daughter Isha provided most of the ideas. It is
difficult to implement any strategy because Ambani keeps fine-tuning it, says a senior executive
who is now in-charge of a large part of Jios business. Another senior hand, who quit after two
years as his role was changed to accommodate others, says: No one clearly knows what the

blueprint is for Jio. It is all in the minds of Ambani and [key aide] Manoj Modi. There are
disjointed teams working on every single aspect you can imagine.
Perhaps as a result, there is something of a revolving door at Jio. The company has hired
hundreds of top professionals from overseas companies. However, several quit after discovering
that others had also been allocated the same project. A senior human resources executive at RIL
says Ambani isnt particularly bothered by the churn as he views these professionals as shortterm consultants. The HR executive strings together an analogy to describe the way Jio works:
At first, a decorated elephant is brought in. He is displayed for a few months, until another such
elephant is captured. The elephant soon becomes a pig. Then, the pig turns into a mouse,
scurrying away from all the noise. If (the once-proud elephant) has some self-respect left, he just
quits. There is no more use for him.
Its a colourful insight, but it is unlikely to startle RIL watchers. The company has long drawn
flack, especially in the western mediafor instance, in a 2014 article in The Economist titled
An Unloved Billionairefor its anachronistic policies, at odds with Ambanis efforts to
modernise. Others may have been flustered by such criticism, but they have made no difference
to Ambani. It is this immunity from the noise around him that allows him to go after daunting
pursuits, no matter the outcome. When you are Mukesh Ambani, sometimes you dont think
about profit or loss. You just do stuff.