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Reliance Jio to launch 4G, fixed broadband services by Dec
13-06-2015

It's promise of cheap 4G handsets, low telecom bills could spark strong countermoves by competitors


Reliance Jio, the telecom venture of Reliance Industries Ltd (RIL), will commercially launch 4G services in December. This promises to be a game-changer for the entire industry, since Reliance promises cheaper LTE smartphones and lower mobile bills.

The firm's entry has been delayed for several years because of the absence of cheap TD-LTE handsets. RIL re-entered the telecom sector in 2010 by buying the only company that had won pan-India 4G spectrum in an auction. The telecom business, since named Reliance Jio Infocomm, has been unable to launch services all this while mainly due to the technology standard that it had adopted, TDD-LTE, being still under development globally.

Reliance Jio spent more than Rs.850 billion to build its network that will take on established operators such as Bharti Airtel Ltd and Vodafone India Ltd.

RIL Chairman, Mukesh Ambani, chose the annual shareholders’ meeting to address concerns related to issues surrounding its heavy investments in the telecom business. “As we speak, we have an end-to-end initial capacity to serve in excess of 100 million wireless broadband and 20 million fibre-to-the-home customers” he said.

“Over the next few months, we will initiate an extensive beta launch involving millions of friendly customers across all our markets. This beta programme will be upgraded into commercial operations around December of this year. I am glad to announce that financial year 2016-17 will be the first full year of commercial operations for R-Jio,” he added.

R-Jio, which got a telecom licence in June 2010, plans to provide 4G services, using LTE technology, in the 800 megahertz (MHz), 1800MHz and 2300MHz bands through an integrated ecosystem. R-Jio has spectrum in 20 of the 22 circles in the country in the 800MHz and 1800MHz bands. The firm has access to the 2300MHz band across all 22 circles.

Ambani said the company’s telecom unit is now present in all 29 states of the country, with a direct physical presence in nearly 18,000 cities and towns and over 100,000 villages. “We are expanding this footprint to cover nearly 80% of India’s population by the end of this year. Our roadmap is to have 100% national coverage within the next three years,” he added.

Moreover, by April next year, R-Jio expects to connect over a million homes via optical fibre with a capacity to rapidly scale up in the top 50 cities of India, Ambani said.

The company will offer data and voice services at half or less than half the current rates. The offerings will include instant messaging, live TV, movies on demand, news, streaming music and a digital payments platform.

Ambani spent half of his hour-long speech on telecom, underscoring the importance the company attaches to the venture. He said R-Jio has been working with several phone makers to introduce a complete spectrum of 4G-enabled smartphones which can cater to high-end as well as entry-level customers. “The combination of R-Jio’s strong initiatives and a supportive global environment gives me the confidence that we will see 4G LTE smartphones in India at prices below Rs.4,000 by December of this year,” he said. He also envisaged monthly subscriber bills of just Rs.300-500.

But all this failed to allay concerns related to the Reliance-Jio venture. “R-Jio’s entry on this scale could be potentially disruptive. However, R-Jio lacks competitive advantage. The sector already has formidable players who lack neither technology nor capital,” Mahesh Uppal, director of Com First, told LiveMint. He said telecom is a services business where good project management skills and deep pockets are not sufficient for success. RIL is yet to demonstrate strength in a services business.

Customer acquisition will be Jio's biggest challenge as it appears to be primarily focusing on data, Jaideep Ghosh, partner, management consulting, KPMG in India, told Economic Times. "Unless they are able to bring much more to the table, both on the voice and data fronts, compared to what incumbents currently offer, it will be very difficult for Jio to wean away customers from India's top three mobile carriers," he said. "A data-dominant 4G services strategy is unlikely to translate into rich customers pickings in a market where voice remains the prime revenue driver," said Ghosh. A potential deployment of voice over LTE services (VoLTE) in India over 2300 Mhz is also fraught with risks as this hasn't been successfully deployed worldwide, he added.

Falling back on its 1800 Mhz bandwidth won't resolve the problem by much as Jio holds the spectrum in 14 of India's 22 circles, of which six were in March and haven't been allotted so far.

However, BoFA Merrill Lynch expects Jio to get into spectrum trading or sharing agreements with one of the existing telcos to overcome gaps. In a report, BoFA Merrill Lynch said Jio's launch will put further pressure on data rates for incumbent telcos, who are finding it difficult to raise voice tariffs in a competitive market. "Reliance Jio's launch would pressure the data tariffs of the telcos, thus squeezing them on both fronts. We maintain our view that Jio launch will lead to heightened competitive intensity that will impact existing telcos, particularly Bharti Airtel, given its higher exposure to urban subscribers"

Jio aims to garner revenues of $10 billion within first year of commercial launch, recovering a major part of the $15 billion investements in the business so far. However, Investment adviser S P Tulsian believes that not a single business that RIL entered in the last one decade is profitable on a net basis. "Retail may grow over 30% in top line, but what's the bottom line? We don't want ebitda numbers, we need PBT figures. Reliance Jio will not be profitable on a net basis in the next two years as depreciation and interest costs between Rs 150 billion to Rs 180 billion will take a toll on the profitability," said Tulsian.

From Livemint, Economic Times, Times of India




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