Why Adani, Ambani moving from infrastructure to B2C

Reliance Jio and Bharti Airtel have completed an All-India rollout of 5G networks. They have cumulatively aggregated over 100 million 5G customers according to Julian Gorman Head of Asia Pacific (APAC), GSMA. Gorman was speaking at the 7th edition of the ETTelecom 5G/6G Congress 2024 held in March in London. Both Reliance Jio and Bharti Airtel have recently raised their rates, cartel-fashion, to be profitable.

The potential number of users in a country of 1.4 billion plus people is a great attraction. There are more than a billion phones in use already (1.18 billion per 2021 data). And a large proportion, even at the bottom of the pyramid, are smartphones, used at a minimum for entertainment streaming and the like. 5G will work faster and better. The gross revenue from the telecom industry was Rs 64, 801 crores ($8.74 billion) in the first quarter of FY 22 as per government data from then. At least another 500 million new internet users will be added in India in the five years from 2022 to 2027.

The prospects have recently lured the Adani Group also into the fray. This, after it spent time denying that it intended to do so. 

However, even with three big contenders, the competition is likely to intensify and might grow uncomfortable. The pie is big enough to go around, and there is no absolute necessity to step on each other’s toes. Having said that, it will have to be a discovery process in tier 2,3, and 4 cities, even as jostling each other in the metro cities could benefit the consumer, if not the provider. The government will gain from further spectrum sales. Adani has only bought a limited spectrum so far for its operations in Gujarat, and not enough to roll out a consumer foray.

Rural India too will be served much better than before, probably using satellite linkages, the cost of which will have to be absorbed by the companies till the consumer numbers are large enough and viably clustered.

The other weak player in the current mix in India is Vodafone Idea (VI), back from the dead, but still ailing.  VI has succeeded in only rolling out a network in four circles it operates in, with the four vendors there. This is a minimum rollout obligation (MRO), to stay in the game, even though Vodafone Idea has not succeeded in rolling out a commercial network as yet.

As of 2023-end, some 5.6 billion people worldwide are using mobile telephony. Of these 58% are using broadband and 18% of these users are now using 5G. And the data usage per consumer in the second largest market for mobile telephony in the world and probably the cheapest, is growing exponentially. 

The lucrative nature of the telecommunications beast has attracted both the Mukesh Ambani-led Reliance Group and the Adani group. These groups are matched in size. Both are simultaneously in heavier businesses, the former anchored in petrochemicals and refining, and the latter in ports, infrastructure and transshipments. It is only Bharti Airtel that is mainly, and one might broadly suggest, only in telecommunications. Bharti has encountered some

headwinds in its efforts to stay profitable, not being in a position to cross-fertilise its yields.

India is rapidly establishing itself as the most digitalised country in the world. It is inexpensive, accurate, swift and relatively safe if all protocols are followed. More and more Indians are learning to trust the process, as the government vigorously promotes digital usage.

Mukesh Ambani was indeed an early entrant into telecommunications but had to back off after the Reliance Group was divided between himself and his younger brother Anil. There was a seven-year period during which he could not compete with the Anil Ambani-led Reliance Communications. At the end of this period, there was a second coming, christened Reliance Jio. Because of very competitive pricing and deep pockets, Reliance Jio soon built up enviable numbers, both in terms of subscribers and market share. Reliance Communications meanwhile, sadly failed.  

Principal rival and survivor Bharti Airtel was helped by its win of the Mumbai and Delhi circles early in the day. Others, like Escotel, eventually collapsed after making heavy losses, because its/their circles were not so creamy. There were not many survivors out of a dozen that existed in 2016. Mukesh Ambani’s Reliance got a chance to launch afresh with free calls and cheap data. It soon gained a 40% market share.

Based on the Vodafone experience, presumably, other international mobile telephony companies will stay away from India’s mass market, even in joint venture, because of its low rates. They may, at best become passive investors and leave the operations to the Indian operators.

The 6G rollout is also lurking in the wings, and happily, all three big players can take care of its demands. China had hoped to roll it out, along with 5G at cut-throat prices, not just in India but in Europe, America, and Canada. But it was not possible to allow it because of spying suspicions and security concerns. China would have done better to not be so predatory but it never seems to learn.

The Reliance Group has entered hospitality, retail, fashion, toys and hydrogen. Adani is in real estate development and green energy. Both are seeking multiple touch points with the consuming and aspirational public. The Ambani children are already at the helm of many of these new companies, with the 67-year-old patriarch as overseer, patron and facilitator.

One can’t say about Bharti Airtel, because of its lack of diversification, but both the Reliance Group and the Adani Group will likely emerge soon as trillion-dollar conglomerates. They will be willing and able to contribute even more to the mission of India becoming a developed country in all respects by 2047, our centenary year.

Editor's note: Broader reasons that apply to both Adani and Ambani

Mukesh Ambani’s Reliance Industries and Gautam Adani’s Adani Group have diversified from their core sectors of petrochemicals and infrastructure, respectively, into business-to-consumer (B2C) businesses for several strategic reasons:

1.    Market Expansion and Revenue Diversification
a.    Reducing dependence on core businesses: Both Ambani and Adani aim to reduce their dependence on their traditional sectors. For instance, the petrochemical and refining businesses are highly cyclical and vulnerable to global oil price fluctuations. Diversifying into B2C segments helps stabilize revenue streams.
b.    Access to larger markets: The B2C sector offers access to larger and rapidly growing consumer markets in India. With a burgeoning middle class and increasing disposable incomes, consumer demand is rising in sectors like retail, telecommunications, and digital services.
2.    Leveraging Existing Infrastructure
a.    Integration and synergies: Reliance has leveraged its vast network of fuel stations and retail outlets to build its telecom (Jio) and retail businesses, creating synergies across its business units. Similarly, Adani can use its ports, logistics, and energy infrastructure to support its foray into consumer-oriented sectors.
3.    Technological Advancements and Digital Transformation
a.    Embracing digital trends: The rise of the digital economy presents significant opportunities. Reliance’s Jio has revolutionized India’s telecom sector, providing a foundation for its digital services, e-commerce, and media ventures. Digital transformation is a key driver for future growth, enabling these conglomerates to tap into new revenue streams.
4.    Government Policies and Economic Reforms
a.    Supportive regulatory environment: India’s government has been promoting digital inclusion, financial technology, and retail sector reforms. Policies supporting the ease of doing business, digitization, and infrastructure development provide a conducive environment for these conglomerates to diversify.
5.    Strategic Investments and Partnerships
a.    Attracting global investments: By entering B2C businesses, these companies have attracted significant global investments. For example, Reliance Jio attracted investments from global tech giants like Facebook and Google, providing not just capital but also strategic partnerships to enhance their market position.
6.    Competitive Edge and Long-Term Sustainability
a.    Building a comprehensive ecosystem: Both Ambani and Adani are building ecosystems that encompass various aspects of consumer needs—from digital services to retail and utilities—ensuring long-term sustainability and a competitive edge over rivals.
b.    Capturing future growth: Diversification into consumer-centric businesses positions these enterprises to capture future growth driven by urbanization, increased consumer spending, and the digital economy.

Examples:
•    Reliance Industries: The launch of Jio transformed India’s telecom landscape, making data services affordable and accessible, which in turn supported its retail and digital businesses.
•    Adani Group: Their entry into airport management, data centres, and renewable energy caters directly to end consumers and aligns with global sustainability trends.
Diversifying into B2C businesses allows Mukesh Ambani’s and Gautam Adani’s enterprises to mitigate risks associated with their core sectors, capitalize on emerging consumer markets, leverage technological advancements, benefit from supportive government policies, and build comprehensive, future-proof business ecosystems.