'Far more investment needed for RIL telephony'

RIL is currently facing lack of towers, non-availability of cheap 4G compliant handsets, coverage challenges

Reliance Industries, yet to announce a launch date for its wireless telephony services, will have to invest another $5 billion (Rs 30,600 crore) to acquire more spectrum for offering uninterrupted data and voice services across the country, say observers.

At present, RIL faces multiple challenges on its telecom business. These include lack of towers, non-availability of cheap fourth generation (4G)-compliant handsets and coverage challenges for the 2,300 MHz spectrum allotted. This short-range spectrum was allotted to RIL when it bought a broadband wireless access licence in 2010.

Analysts say the company will have to bid for the 700 MHz band of spectrum which the government plans to auction within a year. The coverage advantage of 700 MHz will complement the small range of frequency of 2300 MHz, says an analyst with brokerage firm IIFL. “In 700 MHz, the payout could be $3-5 billion for 10 MHz,” the analyst says.

RIL did not reply to a mail seeking information on how it would address the spectrum issue. In its second quarter results announced on Tuesday, the company said it had raised its employee count from 700 last year to a little over 4,000.

“The key leadership positions required to execute the project are in place. RJIL (Reliance Jio) has finalised the key vendor and supplier partnerships required for the launch of our services and is making rapid progress in building the critical infrastructure needed,” it said. RIL has signed an infrastructure sharing agreement with Reliance Communications (RCom, of the Dhirubhai Ambani group) to launch its services. RIL did not give any time frame for the launch.

According to analysts, Bharti, the other entity in the 4G segment, faced similar issues. After a year of the launch, it has failed to pick up pace. RIL will face similar problems and to roll out services in only Mumbai and Delhi, will require more towers than what RCom can offer.

RIL, analysts say, will need 10,000 sites in Mumbai and Delhi; only 3,000 sites now available with RCom. “RIL may not be able to access sites at market rentals while also preserving target profitability for such a high site count,” an analyst said.

Another issue will be handsets; 4G-compliant ones are not very popular across the world. “On the vendor front, it will be too risky for RIL to bet only on one, while having a multiple vendor strategy would spread the volumes thin for the vendors to break even. On the customer front, these handsets will be too expensive and it has to subsidised. Assuming 10 million customers with $100 subsidy each on handsets, it would cost RIL another $1 bn,” an analyst said.

For RIL, including the $2.7 bn already paid for 2300 MHz spectrum, total spectrum outgo will be another $7.7 bn. Adding another $1 bn for network investment and $1 bn more for branding and other expenses, the total project cost will be around $10 bn. “Based on 20 per cent Ebitda (earnings before interest, tax, depreciation and amortisation) margin, RIL would need $7 bn revenue for break-even. This might be achievable but not easily,” goes an observation.