Mukesh Ambani has always nurtured the dream of being the dominant player in India’s digital revolution. Mobile phones were the obvious entry strategy. Having reached a large enough chunk of wireless customers, Ambani has, in the last few months, unfolded a strategy of entering other digital services including home entertainment, health, education, security, and e-commerce.
His ambitious project involving fibre-to-the-home, though launched as a beta-run a few months back, is still far away from the Reliance Industries target of 5 crore wired homes. The idea now is to use wire-line broadband to corner a large part of today’s consumer digital spend through a panoply of services.
Reliance has taken the first major step to disrupt the cable television and broadband market by taking the majority stake in two large players in this segment, Hathaway and DEN.
"The 2.2 crore-plus Target" - Together these two providers will give Reliance the last-metre connectivity into 2.2 crore-plus urban households.
This inorganic expansion follows a similar approach RIL took in its foray into media and entertainment. It has controlling stakes in Network 18, Viacom, Saavn and a couple of smaller players, and significant holding in Eros Entertainment and Balaji Telefilms.
The strategy will be pretty similar to its wireless businesses: disruption of the market through the brute power of heavily discounted pricing has left other players with bloodied balance sheets.
However, in spite of stated results of Jio showing profits, I do believe RIL, too, is haemorrhaging, somewhere in the deep recesses of clever accounting. Yet it does have deep pockets, provided by the robust petroleum and petrochemicals businesses, which allows it the power to play the pricing game.
Obviously, the existing direct-to-home businesses (Tata Sky, Airtel, Sun) will suffer, as will the smaller multiple system operators. In the immediate future, however, Jio will not be able to stop the over-the-top juggernaut.
Besides, with the advent of 5G services and better satellite delivery technology, Jio will take away the competitive advantage of wire-line broadband.
In addition, once the rollout of 5G is complete in three years, Jio’s own wireless business will cannibalise its wire-line offering.
There is another not-so-apparent reason for Ambani’s aggressive new play. Given the huge capital expenditure of wireless expansion — spectrum, towers, backbone are expensive — it makes sense to enter homes by acquiring already-wired homes. After all, the total outlay in reaching 3 crore cabled-passed homes will be below $2 billion.
We have seen the backward integration across telecom, cable, and content happening elsewhere. AT&T, Comcast, Verizon, China Mobile, NTT, Deutsche Telekom, SingTel, and Telefónica are some players with equal, if not deeper, pockets like Jio and as ambitious.
Let’s not forget the 500-pound gorillas like Amazon, Apple, Google, Facebook, Microsoft, Alibaba, Baidu, and SoftBank who will jump into the game whenever an opportunity arises. Technology opens new doors fast but also shuts windows faster.
RIL does hold two aces (money and scale) but let’s not forget that the other two aces (access to capital and creative competence) are with their opponents and there is always a joker in the pack (a stronger disruptor).
However, I still maintain Reliance’s basic handicap remains its B2B mindset, despite Mukesh Ambani’s claims to the contrary.
Content Still A Challenge
The service industry is definitely about the backend, big data analytics, and increasing artificial intelligence, but it is also about the human interface, design, and customer friendliness. The latter is not RIL’s strength, though it is making an effort to change, albeit, with leaden footedness.
Reliance’s e-commerce venture is still an also-ran. The digital business may be about speed and scale but its foundations are based on young adventurers with Mensa minds. Where are such stars in the Reliance solar system? The top 20 in the company are age-old veterans, excluding the Ambani kids. Reliance desperately needs a shuffle of the pack.
The last piece in this digital jigsaw is content. This is where the money will come from eventually. It’s stupid to talk about entertainment and information as mere data.
Unfortunately, data is not the new oil. It’s the analysis of data and its intelligent application, which is.
And services is where the moolah is. Consumers of the engagement economy are not dumb customers buying power, oil or even water. We have examples of banking behemoths struggling against young digital payment companies. A Paytm and Oyo have overtaken many of the giants in their fields right here, right now.
The media and entertainment play of RIL is not only scattered but conflicting, and it smacks of the old school. One can get film stars to dance at parties or as brand ambassadors but you cannot corporatise creativity. Even the mighty Amazon is struggling with original content and the only large corporate to beat the system is Netflix.
Jio has still to make a single big film from the go, in spite of several high profile tie-ups announced in the last couple of years.
Even Viacom in India functions merely as a funding and distribution company and is hardly the leader in its field. Network 18 has more channels than profitability.
Mukesh Ambani has the vision and money but does he have the light touch so critical in a 21st-century business? It’s a question whose answer I am eager to learn. And the clock starts now.
(Amit Khanna is a writer, filmmaker, and media guru, and was Chairman of Reliance Entertainment from 2000 to 2013. The views expressed here are those of the author and do not necessarily represent the views of The Quint or its editorial team. This piece was originally published on BloombergQuint)
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