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Reliance upstart targets Indian cell market for shake-up

Reliance Jio Infocomm is offering free data and calls through December to get customers in the door.

MUMBAI -- A Reliance Industries unit's splashy debut adds another major player to India's overcrowded mobile phone carrier market, pushing existing providers to prove their mettle or leave the field.

Low-cost newcomer

A tiny Reliance electronics shop in southern Mumbai is drawing hoards of customers on the hunt for a fourth-generation SIM card from Reliance Jio Infocomm, which began offering cell services in early September. The provider, a unit of India's largest private company by sales, is drawing people with its offer of free voice calls and data transmission through December -- a service unlike that from any rival, says an excited 20-something man here with a Jio contract.

Jio's fees will remain low even after the promotional period ends. A three-week prepaid SIM card with up to 2 gigabytes of data and free calls costs just 299 rupees -- less than $5 -- around half the rate before Jio's debut.

Jio also sells 4G-compatible smartphones in its stores, including low-end models for just 2,999 rupees. The company is mounting its charge into the market from over 120,000 sales locations nationwide, including phone dealerships, an official said. Some 16 million users signed up for service in the first month, the company said.

The upstart carrier's network will serve 90% of India's population of 1.2 billion by March, Reliance Industries Chairman Mukesh Ambani said. Additional planned investment will bring spending on the service to an unrivaled 2.5 trillion rupees ($37.4 billion).

Reliance's group operating profit climbed 30% on the year for the July-September quarter, thanks to improvements at key operations such as oil refining, the company said Thursday. Yet steps are being taken to diversify operations and cut exposure to the volatile petroleum market. Though Jio is undoubtedly a latecomer to cell service, the company's meticulously planned and heavily funded foray has made major waves.

Bloated market

India's cell service market had grown at double-digit rates for several years to reach about 1 billion contracts, making the country the world's second-largest mobile market. But that expansion has slowed to a comparatively mild 6-7% annually. For Jio to grow as it plans, the company will have to lure enormous numbers of customers from its many rivals.

Indian regulators divide the cell market into over 20 distinct service areas, and have not been shy about licensing providers, creating intense competition. Twelve carriers operate in the country -- a number Bharti Airtel Chairman Sunil Mittal has called excessive, saying four or five is a more appropriate figure. The emergence of Jio, a potential powerhouse, could spark a long-overdue wave of consolidation and knock lower-rung players out of the game.

Industry leader Bharti Airtel and Idea Cellular have struck back at the challenger by cutting rates. Vodafone of the U.K. plunged 477 billion rupees in new capital into its Indian unit by late last month, hunkering down for a grueling war of attrition. Rival Reliance Communications, led by Mukesh Ambani's younger brother Anil, announced a merger of wireless operations with the smaller Aircel in mid-September.

Vodafone and Bharti Airtel paid 202 billion rupees and 142 billion rupees, respectively, for vacant spectrum the Indian government auctioned between late September and early October. Jio spent 136 billion rupees.

Amassing debt

Rate cuts and investment offensives have taken a heavier toll on the existing carriers. India's cell service industry carried 4.1 trillion rupees in debt as of March, according to Indian credit rating agency ICRA. Bharti Airtel and Idea's debts more than doubled equity capital for the year ended in March.

Service providers are now battling over matters other than fees and features. Existing market players insist Jio pays them too little in access charges, raising the matter with India's wireless regulator. Jio has fought back, arguing its customers must deal with poor network connections when calling other companies' users.

Regulatory battles and fights for customers look to grow only fiercer as Reliance throws its weight around in India's maturing cell service market. An entirely new industry landscape could emerge once the dust has settled.

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