9/25/2016

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Zimbra

72770@fsm.ac.in

Spam:TheJioGamble!

From: FOREEconomy&FinanceForum<fef@fsm.ac.in>

Sat,Sep10,201601:13PM

Subject: Spam:TheJioGamble!
To: IMG10<img10@fsm.ac.in>,IMG9
<img9@fsm.ac.in>,FMG24<fmg24@fsm.ac.in>,
FMG25<fmg25@fsm.ac.in>
Cc: Dr.HimanshuJoshi<himanshu@fsm.ac.in>,President
studentscouncil
<president_studentscouncil@fsm.ac.in>,Vice
PresidentStudentscouncil<vice
president_studentscouncil@fsm.ac.in>,SumeetKaur
<skaur@fsm.ac.in>
GREETINGSFROMTEAMFEFF!
RelianceJiohasarrived!
RelianceIndustriesChairmanMukeshAmbanisspeechon1stSeptemberannouncingthe

entryofRelianceJioandthebenefitsitoffers,totheconsumerssentthetelecosofthe
countryintoatizzy.The90minutespeechgivenbyMukeshAmbaniduringtheAnnual
GeneralMeetingofRelianceIndustriesLimited(HoldingcompanyofRelianceJio)notonly
ledtoasurgeinmarketsharepriceofRIL(from1,000to1070,almost7%)butit
alsosawthesharepriceofmajortelecomcompanieslikeIdea,Airtelfallbyalmost6to
10percent,wipingoutnearly15,000croreinmarketcapitalisation.

AmidstallfussaroundJio,thefinancestudentinyoucanthelpbut
wonder,howinGodsnameisReliancegoingtofundallthis?
LetusdigdeepandunderstandtherationalebehindlaunchingReliance
Jio
ReliancesbiggeststrengthintermsofJioistheiropticfibrenetwork.Anopticalfibreisa
wirethatconvertsyourdatasignalintolightandtransfersthematthespeedoflight.
RelianceJiohasthelongestfibreopticnetworkinthecountry,rangingover2.5lakh
kilometresoffibre.RelianceJioinvested1,50,000Crores($22billion)inbuilding
thisfibreopticnetwork.Putthisinperspectivethisismorethantwotimes
thecombinedinvestmentofAirtel,IdeaandVodafoneinthe4Gsegment.Now,ifyouare
investingsuchahugesumofmoneyintothemarketwhichisstilluntestedinIndia,how
areyouexpectingtoearnprofit,especiallywhenRILwantsan1820%returnontheir
capital?
Hereishow:
Theplanistofirst:
Undercutthemarketbygivingdeeppocketdiscountsandmakethemanofferthey
cantrefuse.
Thenextstepistogivetheuserssuperfastinternetsuchthattheydontwantto
switchtootherserviceproviders,

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Growyoursubscriberbasefromthereandrecoverthecostbyusingthelarge
numberofuserbase.
Thisseemsfairlysimple.Thebestpartaboutitis,itisactuallydoable.Oncetheopticfibre
hasbeenlaiddown,themaintenanceandoperatingcostisverylow.Hencethesolefocus
isgoingtobeongettingmoreusers.
Jiocurrentlyhastheabilitytoprovidetrulyunlimiteddataplans,buttheyarentdoingthat
becausetheywanttoearnprofit,howevertheyhavereducedtheirratesby50%.This
meansthatpeoplewillanywayusetheirservices.Iftheyprovidemoredatausageinlower
endplans,thelesserpeoplewillbuyhigherendplansfromotherserviceproviders.Sothe
priceisoptimaltoincreaseprofit,ifthecompetitionreactsbyloweringprices,Jiowill
furtherreduceitspricestoretainitsuserbaseandapricewarbetweenthesecompanies
willeventuallybenefitconsumer.
RelianceIndustriesisalsoformulatingarevenuemodelfortheRelianceJioapps.
CurrentlyonecanaccesstheRelianceJioappsforfreebutwithtime,expertsbelievethat
Reliancewillchargenominalamountforusingtheappsandhencecangeneraterevenue
of34percent.
HowevergivenalltheamazingthingsaboutJio,itisunlikelythatthingswillbeeasy
forJioandtheshareholdersofRelianceIndustriesLtd(RIL):
Aggressivepricingmeansthatbreakevenwillgetdelayed.Onthelaunchday,RILs
sharepricealsodroppedbycloseto3%.Clearly,shareholdersofexisting
operatorsarenottheonlyworriedlot.Jioisahugediversificationbetanditssuccess
willbecriticalforRILanditsshareholders.
SomeanalystsonDalalStreetareoftheviewthattheentryofRJiomayactually
benefittheexistingplayers.Jioislikelytoincreasedatausageandthatwillbenefit
thetelecos.
AnotherfactoristhatJiohasalreadyspent$22billionandhasanexcessdebtof
95,000croreinitsbookssoithastotreadcarefullyifithastoincreaseanyfurther
investment,butAirtelandIdeadonthavethatlimitationbecausetheyhavent
investedasmuch.
Theinvestorsarewary,butthemarketshavegiventheirverdict.Reliancehasenteredthe
marketinaverycalculatedwayandthewayitdeliversonitspromisesisgoingto
determinethefateofthisproduct!

Regards
AnushaGupta
Member,FEFF

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