Reliance Industries chairman Mukesh Ambani's grand telecom mission Jio disrupted the industry like no could have predicted when it launched three years ago. In 2016, when Jio was yet to be inaugurated formally, Indian per capita consumption of mobile data was hardly a GB (gigabyte) per month. India didn't figure in the top 20 mobile data consuming countries, which were mostly developed economies. Three years on, thanks to Jio, Indians consume 11 GB of mobile data per month, taking them to the top of that table. Incidentally, Indian data prices are also the cheapest in the world.
Jio, driven by the latest 4G LTE (long term evolution) technology, free voice calls and dirt cheap data prices, disrupted the industry. A bunch of local players, including Reliance Communications run by Mukesh's younger brother Anil, wound up their mobile telephony operations and big players like Vodafone and Idea consolidated to fight the new competitor. In May 2019, Jio emerged as the second biggest telecom players in the country, displacing Airtel, which was India's biggest mobile telephony company since telecom licences were first given in 1996. The merged Vodafone Idea is currently India’s No.1 telecom company.
But, Jio's latest quarter results, show that its sheen may well have worn off, at least for now. In the first quarter ended June 2019, Jio's revenue growth at 5% was the slowest in several quarters. Though it continues to add millions of customers, even as its competitors are losing them, the average revenue per user in Jio network is slowly coming down. ARPUs have declined for four straight quarters in a row despite growth in usage. It seems to highlight that Jio's services are either sub optimally priced or incremental consumption on its network is not adding up to any revenue for the the company.
During the quarter, Jio reported that its net profits grew to ₹891 crore from ₹612 crore for the same period last year, an 45.6% jump annually. This, however, is largely on account of adoption of a new accounting standard which brought down operating costs significantly for the quarter. An India Infoline research report on Jio, published after the quarter results, estimates that the firm’s EBIDTA margin would have declined 0.6% had it not adopted the new accounting rule.
The India Infoline report also says, citing its field reports, that Jio's capex is down and so are the sales of its popular Jio Phones, which have sold more than 25 million to date. Taken together with the fact that Jio is hiving off and monetising some of its infrastructure assets like its telecom towers and fibre, the company seems to be in a mode to pare its costs and retire debt. Reliance Industries, which bank rolled Jio's massive investment, has over ₹288,000 crore in debt, which analysts have recently red flagged. Broking houses like J P Morgan and Morgan Stanley have since April downgraded the company owning to earning risks in the petrochem sector. Monetising Jio's assets is expected to reduce this debt substantially.
To grow its business faster, Jio has to increase usage or add more high paying customers. Analysts feel that Jio will not lower prices now to increase usage as it will hurt its revenue growth further. Neither will it increase prices as that will help competition like Airtel to get stronger. Already, the weakest telecom player Vodafone Idea has managed to retain its revenue market share in recent months, indicating that it has been able to stabilise its business after several quarters of severe onslaught from Jio.
Though Jio added 25 million subscribers in the first quarter of FY20, the company said the traction for subscribers came from those who either subscribed to schemes as low as ₹99 per month or converted their subscription to longer term packs (three months instead of one) which are cheaper. That is not going to add to ARPUs in a big way. Says an analyst from a foreign brokerage, who did not wish to be named: "It is already selling services at rock bottom prices and therefore, to increase profitability it has clearly embarked on a cost cutting program."
Of course, there are several new plans in the offing to increase revenue for the company. A year ago, in its annual general meeting (AGM), Reliance Industries chairman Mukesh Ambani had said that the next big thing for broadband connectivity in the country would be to wire up homes and commercial establishment through optic fibre connectivity. Branded JioGigaFiber, the idea was to extend fiber connectivity to homes, merchants, small and medium enterprises and large enterprises across 1,100 cities. Booking for the service started on August 15, 2018.
However, there has no been formal announcement of a commercial launch of wired broadband services from the company yet. While announcing the first quarter results of current financial year, the company said that beta trials of the JioGigaFiber services are in the final stages. Ambani, while announcing the results said: "Beta trials of JioGigaFiber services have been very successful and the entire bouquet of smart home solutions would soon be rolled out to targeted 50 million households and beyond." It is now expected that a formal launch of the services will be announced at the upcoming AGM next month.
The launch will be important for Jio. The company has already spent over ₹300,000 crore for building its 4G LTE network and is also laying down a nationwide optic fibre cable network. Last year, when the company had about 215 million customers, the capacity utilisation of its network stood at only 20%. To extract the most of out its network, it needs to ramp up capacity utilisation. World over, video is the biggest consumer of bandwidth. India has over 200 million cable television homes.
If Jio is able offer television to homes through JioGigaFiber, its massive fibre capacity would then prove more remunerative. Last year, to quicken the process of reaching homes, Jio acquired cable network companies Den and Hathaway and their integration is ongoing. However, unlike its mobile telephony services, JioGigaFiber's comes with a lot of implementation bottlenecks – to reach and install fibre modems and get consumers to pay an additional ₹2500 for them.
The execution of JioGigaFiber is crucial for Jio. Ambani had similar plans when he launched his first version of telecom services in 2003. He couldn't execute the plan at that time as he lost control of his company Reliance Infocomm to his brother in a family division of assets.
Jio’s business apart, it will interesting to see how Ambani achieves his dream of wiring up every home in the country.