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Mukesh Ambani sets high bar for Jio

There can be little doubt that Mukesh Ambani is ready to dial it up. The Indian tycoon's telecom operator, Jio Platforms, has been valued like a tech startup, at US$68 billion, by a growing list of A-list investors.

[MUMBAI] There can be little doubt that Mukesh Ambani is ready to dial it up. The Indian tycoon's telecom operator, Jio Platforms, has been valued like a tech startup, at US$68 billion, by a growing list of A-list investors. Other alluring tales of fast growth have disappointed, however, and in this case the prospect of serious competition may be too heavily discounted.

In four short years, the US$130 billion Reliance Industries conglomerate has signed up some 388 million mobile subscribers. It now dominates the market. Customers pay for superfast data, voice calls are practically free, and there is complimentary access to digital services including music, movies, television, news, chat, payments, basic games and more.

A who's who of backers are now queuing up. Facebook unveiled a US$5.7 billion investment in late April. Buyout shops Silver Lake, Vista Equity and General Atlantic and others also have announced stake purchases, bringing the sum raised to about US$10 billion over the past six weeks. Microsoft, Abu Dhabi's Mubadala and Saudi Arabia's Public Investment Fund all want a piece of Jio, too, according to media reports.

The 10 per cent stake acquired by Facebook was its largest deal since it paid US$19 billion for WhatsApp in 2014 and signalled the social network's ambitions in India. And the US$1.5 billion injected by KKR marks the largest single-company deal in Asia from the private equity firm led by Henry Kravis, larger than its investments in ByteDance, TikTok's Chinese owner, and Gojek, Indonesia's ride-hailing-and-more super-app.


These eager investors are valuing Jio at up to 23 times Ebitda or earnings before interest, taxes, depreciation and amortisation. Bharti Airtel, Jio's closest telecom rival by subscribers, fetches a multiple of nearly half as much even though the Singapore Telecommunications-backed operator squeezes more out of its 4G customers. Airtel's average revenue per user was 154 rupees (S$2.90) per month in the most recent quarter, against Jio's 130 rupees. And compared to peers elsewhere, Jio's valuation is eye-watering. AT&T, for example, trades at seven times Ebitda while China Mobile garners just two times.

Some of the premium can be justified. Mr Ambani's backers have understandably bought into the idea that Jio will be more than just a dumb pipe transmitting bits and bytes of data through the air. Although AT&T is trying to deliver more services, evidenced by its acquisition of HBO-owner Time Warner, the likes of Uber, Twitter and Alphabet-owned Google dominate in digital. Likewise, China Mobile is overshadowed in such areas by the US$500 billion Tencent.

Jio has significant room to grow its core telecom revenue. India's data usage per smartphone has been ranked as the highest in the world, but its prices are among the lowest. The real prize will be to charge mobile users for infotainment and more, and then embed those services into millions of homes with a broadband offering rolled out late last year. Premium users already pay for ad-free music on JioSaavn, and could soon do the same for gaming, health, education and more.

Advertising could be another source of revenue. And Jio wants to extend its grip beyond individual consumers. It plans to build data centres across the country and is partnering Microsoft to take on Amazon and Google in the sale of cloud computing services that primarily target small and medium businesses. The ambition, it seems, is endless.


Although Jio's infrastructure may be hard to match, the differences will be subtle for users. Jio produces a lot of its own programming and provides more choice in content. At the same time, Airtel also offers telecom, broadband, news, entertainment, payments and more. And while the incumbent relies more on third-party providers such as Netflix and Disney's Star, that business model has worked for Tencent.

Mr Ambani's advantage is probably narrower than is widely perceived. Morgan Stanley bankers have been advising Jio on its fundraising, but analysts there see the developments also providing Airtel with a lift. They reckon that its US$40 billion market value could more than double on the back of new revenue streams.

There is more recent evidence the market could be ready to embrace additional challengers too. Following a Financial Times report last week that Google was in talks to invest in embattled Vodafone Idea, the Indian company's shares jumped as much as 30 per cent. It said there is no proposal in front of its board.

Other big unknowns also exist for Jio. It may be able to capitalise on links to Mr Ambani's extensive but separate brick-and-mortar retail operation, helping to bring a new grocery business online as Reliance looks to compete with Amazon. That might not provide a special edge in the race to become a super-app, however. To compete with e-commerce rival Alibaba, Tencent gives users of its WeChat service access to rival

Much of Jio's value will ultimately be determined by its ability to keep customers inside the broader Reliance world. So far, Mr Ambani's sheer aggression in building out Jio has been enough to attract money from backers who want to be involved in the next big thing and who consider India a friendlier place to invest than China.

Another big allure is the opportunity to get in ahead of a promised initial public offering, possibly overseas. Jio has a profitable foundation from which to expand and Mr Ambani holds a lead in this potentially lucrative digital market, but it would be optimistic to think it is all his for the taking.

Mr Ambani is preparing his wireless telecom and digital services business, Jio Platforms, for an overseas listing, Bloomberg reported on May 26, citing unnamed sources.

The offering could happen in the next 12 to 24 months but there is no final decision on timeline, size or venue, according to the report.

KKR on May 22 said it would invest in the Reliance Industries unit, imputing an enterprise value of 5.16 trillion rupees, or about US$68 billion.

Facebook, Silver Lake, Vista Equity Partners, General Atlantic and KKR have announced aggregate investments in Jio Platforms totalling 785.6 billion rupees over the past six weeks.

Abu Dhabi fund Mubadala is also in talks to invest in the unit, Reuters reported on May 28, citing sources. Other media reports suggest Microsoft is ready to invest too.


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