Will Mukesh Ambani’s Telecom Playbook Work In Broadband?

Mukesh Ambani has found his next big disruption target in broadband and cable television services. The trouble is it's a stagnant market that requires additional infrastructure, and users are usually reluctant to switch.

That's unlike the telecom market that India's richest man upended with cheap data. It was growing when Ambani launched Reliance Jio Infocomm Ltd., partly leveraging existing tower infrastructure in the industry. And customers obliged.

The chairman of Reliance Industries Ltd. announced plans to launch JioGigaFiber—a fibre broadband network targeted at homes and businesses across 1,100 cities. He invited registrations from Aug. 15, saying demand will help the company prioritise where to offer its services. JioGigaFiber will come with routers and a set-top box for television.

Ambani's telecom arm Reliance Jio Infocomm Ltd. is eyeing nearly five crore broadband subscribers—it didn't specify by when. What puts that into perspective is this: the sector has only 1.8 crore users, with a penetration level of 6 percent.

Stagnant Market

Aggressive pricing will be the key to Reliance Jio meeting the target. But there are factors that could work against the hydrocarbons-to-telecom giant, research firm Jefferies said.

Subscriber base in the fixed broadband space hasn't grown over 15 months to April 2018. Jefferies attributes this to expensive pricing and lack of focus and execution among incumbents. The market is dominated by two state-run firms and has five major players.

Unlike cable TV, growth for direct-to-home operators has seen steady. The cable industry is fragmented and is dominated by regional players. The DTH sector has five major service providers.

Costs

As Jio eyes not only broadband but cable users as well, its product pricing must be at a discount to that of incumbents, Jefferies said. On average, broadband services cost Rs 500-1,000 a month depending on speed; cable and DTH services cost Rs 200-300, varying with quality and the number of channels offered.

Sticky Customers

Jefferies said subscriber base and penetration levels for cable are low because:

• Incumbents are unable to scale up operations due to high capital intensity.
• Time consuming local issues complicate last-mile access.
• Customer stickiness acts as an entry barrier.

The challenges for Jio to garner five crore subscribers would only be last-mile access and willingness of customers as it's already incurred a major capital expenditure. The company laid intra-city fibers over three lakh kilometres in length.

The size of the broadband, cable distribution and DTH industry was close to Rs 52,000 crore in 2017. Independent research houses Media Partners Asia and EY expect it to grow to around Rs 66,000 crore by 2020.