India's richest man Mukesh Ambani, made one of the biggest bets in the world of business, last September, when he launched mobile telecom network- Jio. The connection went on to become such a massive hit, it has over 100 million customers in the past six months, with users ranging from slums to the country's elite. It has been known that Ambani spent a whopping amount of $25 billion, without a rupee of profit, causing panic amongst his investors and competitors.
While the market remains stunned by his newest business venture, it is evidently known where the man gets his gamble-playing streak from. Dhirubhai Ambani, who came from very humble roots, is known for creating a fortune for himself, and his large appetite for giant industrial projects. He set up Reliance Industries Limited in 1957, a venture that went on to claim several sectors including textiles, oil refining, and petrochemicals. Mukesh Ambani, and his brother Anil, took hold of the conglomerate in 2002, later splitting in 2005, leaving the elder brother in full control of RIL. Mukesh's record remain patchy ever since.
The elder Ambani has punted several huge projects, one such being a massive investment to modernise the petrochemicals and refining business. While this decision proved to be a success, his other operations have been a flop. RIL, in 2010-15 spent $ 8 billion on shale fields in America. With the lower oil prices, they have been losing money. The company also invested about $ 10 billion in energy fields off India's east coast, and have produced less gas than expected and are worth little. These are just two of several examples where Reliance seemingly lost more money, that it made. Unfazed by the losses, Mukesh soon pursued yet another bet- Jio.
Not an over-night operation, Jio is known to be a decade in the making. Following its entry in the telecom market, there has been a brutal price war. A rival executive states it is carrying more data than either of the worlds' two most valuable operators; China Mobile or AT&T. Jio will begin charging from April 1. Even if one assumes, it will raise prices at a steady pace, and win a third of the market, a discounted-cash-flow analysis suggests it would be worth only two-thirds of the sum that Ambani has spent. Jio would need to earn the same amount of profit that the country's entire telecom industry made last year, at some point. In other words, there is no escaping the punishing economics of pouring cash into networks and spectrum. For every customer that Jio might eventually win, it will have invested perhaps $100. Compare that with Facebook or Alibaba, both asset-light internet firms, which have invested about $10 per user.
Jio’s three main mobile competitors have scrambled to respond. Bharti Airtel is buying a smaller rival to try to lower its costs. Vodafone is in talks about merging with Idea Cellular, another operator. Half a dozen or so weaker companies (including the firm now run by Ambani’s brother) will probably disappear. The best hope for Jio is that in the distant future it will be one of three firms left and that a cut-throat industry will evolve into a comfy oligopoly, which is possible.