Free phones power Mukesh Ambani’s tech ambitions

MUMBAI, Mukesh Ambani is powering up his tech ambitions. India’s richest man on July 21 unveiled a ‘zero-cost’ high-speed Net-enabled phone to the jubilant crowd at the annual meeting of his Reliance Industries. That will help his upstart Jio mobile network reach a bigger audience and seriously up the ante in a vicious price war. Anyone expecting a financial return will have to wait.

Customer base

Launched 10 months ago, it already boasts 125 million customers. But most Indians still use handsets which typically only work on older networks. JioPhone, which will offer users unlimited voice and data for just $2.38 a month, makes the network more affordable and accessible to users of those feature phones. There are around 500 million such devices in use in the country.

In return, Mr. Ambani is demanding loyalty. Most Indians use phones on a pay-as-you-go basis, switching between operators to get the best tariffs at a given time of day. JioPhone users will have to put down a security deposit of ₹1,500 that is refundable after three years. That is a small but not insignificant sum. The financial case is harder to discern. If Jio signs up 250 million customers and puts their deposits in the bank, it would earn $460 million in interest a year. That won’t make much of a dent in recouping the cost of the phones.

Yet, shares in the $77 billion oil-to-retail conglomerate are up 57% in the past year even as Jio’s price war has crushed rival operators. Vodafone India and Idea Cellular have agreed to merge while Reliance Communications is struggling to repay debt. By contrast, almost all of RIL’s PBIT comes from its petrochemicals and refining businesses, which are thriving due to low oil prices.

Mr. Ambani is loading his phones with apps that direct users to other parts of his empire, including retail, mobile payments and TV content. The bet is that a bigger network will have a better chance of earning a profit later.

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