Reliance Jio, the telecom operator from Reliance Industries, made a presentation before investors in Mumbai yesterday in which it claimed that it has a headstart of 3-4 years in its core network roll-out compared to rivals and sought to allay concerns on its pricing strategy.
The company, which hosted an investor meet in Mumbai yesterday, exuded confidence about its competitive strengths and sought to allay concerns among analysts about its business model.
The stock of Reliance Industries has been trading up 2-3% today.
HEADSTART
The key point the company made, according to several analysts who were present at the meeting, was that it would prove to be very difficult for rivals to replicate its business model immediately.
It said that it has enabled 60% of its cell sites with fiber, while rivals are at just 20%.
Without fiber backhaul, a volume-based play like that of the new operator would be difficult.
For example, Jio offers 60 GB of data for Rs 999 per month at present, while the maximum that anyone else gives at that price is 20 GB, given by Vodaffone. Most others give only 10 GB.
Similarly, the new entrant offers 1 GB per day for Rs 303 per month.
The only player to come close to that offer is again Vodafone, which has started rolling out a similar pack priced at Rs 346 in select circles.
However, Jio claimed that it enjoyed a dual advantage — extensive fiber network coverage complemented by far more spectrum, that would make it difficult for others to copy its high-volume strategy.
While Vodafone is running its 4G service on 10 MHz of spectrum (5 for upload and 5 for download) in most places, Jio is operating with 50 MHz — thus giving it four-fold increase in capacity for the same number of towers. The only player that comes close is Bharti Airtel, which has close to 40 MHz in most circles.
Given that radio capacity is arrived at by muliplying the total spectrum by the total number of towers, Reliance said it has 4.7 times the 4G data capacity compared with the 4G radio capacity of all the other players put together. It estimates total 4G radio capacity in India at 16.3 million MHz-towers, out of which it said it alone accounted for about 13.5 millon MHz-towers.
The company did not include 3G capacity to calculate this number. The gap would have been smaller if it had done so as it does not have 3G towers.
The higher spectrum capacity and its wide fiber network would give it a strong competitive advantage, it said. “Incremental backhaul is not only expensive but also time consuming and complex execution,” it said in the meeting yesterday.
MARKET SIZE
The operator also sought to reassure analysts that its business model was not based on shaky numbers.
Many critics have wondered how the company is going to make any return on its investment — currently close to Rs 2 lakh cr — if it prices its data at Rs 50 per GB or lower.
In fact, for the first year, the company is pricing data at Rs 13-20 per GB.
With an average monthly bill of around Rs 200 per month and a maximum addressible customer base of 200 mln, the company will be able to generate revenue of only around Rs 40,000 cr. Given that the operating costs would be comparable to this number, this would leave the company with no money to service its debt, let alone pay it back, many critics have said.
The company sought to allay such concerns by disputing that the maximum addressible market will be restricted to 200 mln only as well as the average revenue that a single customer generates per month.
It said historically, India has a population of around 400 mln (40 cr) subscribers who have the proven ability and willingness to pay Rs 500 per month for telecom services.
The company sought to prove the point by looking at India’s first 400 mln mobile users.
Back in 2009, it said, India had only 392 total mobile users, and they were paying an average of Rs 179 per month. In today’s money, that is equivalent to Rs 500 per month.
So, it said, “400 mln subscribers can afford to spend Rs 500 and above on digital services.”
In other words, its addressible market was Rs 2 lakh cr, and not Rs 40,000 cr.
Moreover, it said, it expects its operating profit (EBITDA) margin to be higher than 50%, which means that it can potentially reap operating profit of Rs 1 lakh cr per year.
Given that it has to pay interest and write off spectrum and assets worth about Rs 20,000-30,000 cr per year, that would still leave it will enough for a return on investment.
FUTURE MARKET
The company said it expects the Indian wireless data market to explode to about 500-600 cr GB per month. Before Jio’s entry, it was at 20 GB cr. After the company’s entry, it has expanded to about 100 GB cr per month.
“At yield of Rs 50 per GB it translates to Rs 3.0 – 3.6 lakh cr per year (2020-21),” it said.
Before that, within the next two years, the data market will go to 1.3 lakh cr rupees from about 30,000 cr at present, it added.
“Industry growth was low in last 5 years – next 5 years (will) see rapid growth with data explosion,” it said, adding that it expects to corner a large share of this incremental market.
It “caters to 85% of mobile data traffic in India today… (and) can support more than 60% of forecasted 2020 – 21 India data demand,” it predicted.