Here’s how Reliance Jio will use data muscle to capture Indian telecom
MUMBAI/NEW DELHI: Reliance Jio Infocomm aims to capture half of India’s mobile-telephony market at 50% margins, underpinned by increased data consumption and service quality the company expects will draw high-paying consumers to the carrier owned by the country’s richest man.
In a presentation on Monday to analysts, Jio said data will be at the vanguard of its planned marketshare expansion. The telco did not specify the time frame for reaching its financial targets, but people familiar with the matter said these were expected to be met in 2020-21.
In the December quarter, Bharti Airtel had a market share of 33.1%, Vodafone India owned 23.5%, and Idea Cellular had 18.7%. They were followed by Tata Teleservices (TTSL), Aircel and Reliance Communications with 6.2%, 5.5% and 4%, respectively, according to brokerage HSBC. Similarly, Bharti Airtel had an EBITDA (earnings before interest, tax, depreciation and amortisation) margin of 36.7% and Idea Cellular 25% in the December quarter. In the six months to September, Vodafone’s EBITDA margin was 29.6%. Vodafone India and Idea are in talks for a possible merger.
Deutsche Bank Equity Research Asia, which attended the first analyst meeting held by Jio, said the telco expects India’s mobile market will expand by 50% over five years to $45 billion (Rs 3 lakh crore) versus $29 billion (Rs 1.94 lakh crore) currently.
Industry revenue growth is likely to drive government revenue by 50%, Jio said in its presentation.
To be sure, some analysts considered Jio’s targets aggressive. Bank of America Merrill Lynch said both targets appear “very ambitious”, adding: “We note that not many telcos in the world are consistently able to increase average revenue per user (ARPU), a key thing which we think Jio is banking on to help it generate strong revenue/EBITDA.”
Deutsche Bank Equity Research Asia said: “Contrary to investor expectations, Jio believes the Indian
telecom market is likely to grow by 50% over five years driven by ARPU growth. Jio expects data yields to stabilise at around Rs 50/GB. The yield under their current plans is around Rs 30/GB, which they expect would rise over time.”
Jio’s financial projections are premised on explosive growth in data. It said the overall industry revenue in India will touch Rs 3 lakh crore in the next three-four years. About Rs 1 lakh crore in voice revenue will shift to data, pushing the latter’s growth to Rs 1.3 lakh crore in 1-2 years.
Bank of America Merrill Lynch expects Jio to aggressively target enterprise customers. “Over a longer term, we got a sense that Jio is keen on raising consumer yields/ARPUs. We consider it beneficial for incumbents and the industry,” said its report.
Leading global consultants have forecast demand for data at 500-600 crore GB per month. At a yield of Rs 50 per GB, it translates to Rs 3-3.6 lakh crore per year, which is equivalent to 1.35-1.6% of projected GDP, but still lesser than 2.5% in developed economies, said the Jio presentation. The carrier estimates there are around 263 million smartphone users with an effective ARPU of Rs 329, and 496 million feature phone users with an effective ARPU of Rs 172.
Deutsche Bank Equity Research Asia’s report said Jio expects unique subscribers at around 800 million in the medium term and believes around 400 million users can afford to pay about Rs 500 on digital services, which is much higher than the ARPU of Rs 179 in 2009.
Jio’s assertion comes a few days after the Telecom Commission, the country’s apex policy-maker for the industry, pulled up the regulator for allowing the company to continue promotional offers, costing the government Rs 685 crore.
With seven customers joining every second since September 5, Jio disrupted the industry with its ‘Welcome’ and ‘Happy New Year’ offers that provided subscribers free voice and data services along with access to the company’s digital content ecosystem. Following the inevitable price war, Bharti Airtel’s profit fell 55%, Vodafone India’s onyear service revenue fell 1.9% while Idea posted its first loss since listing in 2007 in the December quarter. The 4G entrant has also informed analysts that for incumbents, refarming 3G spectrum to use for 4G is very costly and challenging.
Bank of America Merrill Lynch said the pressure on incumbents’ ARPU will continue since companies such as Bharti Airtel will try to match Jio’s offers. This week, Sunil Mittal-owned Bharti Airtel scrapped roaming charges for outgoing and incoming calls and SMSes and data usage within India.