Reliance Jio looks beyond mobile operations to monetise digital platforms

With subscriber additions slowing, the price-competitive player is looking beyond its mobile operations to monetising its digital platforms. But that's where the competition is acute

The great Reliance Jio juggernaut seems to be losing steam. For a company that has publicly targeted a 500 million mobile subscriber base, its results last week disappointed analysts and the market, with the share nosediving since. Net mobile subscriber additions (new subscribers minus those who left the network) in the third quarter of FY 21 grew a mere 5.2 million, slowing considerably from 6.9 million in Q2, when rival Bharti Airtel took the top slot for the first time since Jio’s launch. And it is far behind its dream run in the previous four quarters (see chart).

RIL’s management blamed this slowdown on the disruption caused by the movement of migrant workers due to the Covid-19 pandemic and the farmers’ agitation, with protestors targeting its food retail and related businesses. It also pointed out that average revenue per user (ARPU) has sharply risen by 4 per cent and revenues by over 5.8 per cent sequentially.  

But Bharti has been able to buck many of the same challenges — its net additions in the second quarter of FY21 went up by 14 million. Given RIL’s deceleration in net additions for the last two quarters Morgan Stanley has readjusted ARPU and EBIDTA (earnings before interest, depreciation, tax and amortisation) for FY23 downwards by 5 and 11 per cent respectively, principally to reflect the restricted scope for a tariff increase.  

This outlook partly reflects the fact that the economic slowdown will slow subscriber additions for several quarters. But the market was expecting a tariff increase by Jio and other telecom companies (telcos) to maintain EBITDA margins (the last increase being in December 2019). Jio’s problem is that subscriber growth is dependent on competitive tariffs — it offers a 15 to 20 per cent discount over its rivals. Any tariff hike can, therefore, stifle net subscriber growth.

It is clear from its investor presentation that RIL subsidiary, Jio Platforms Ltd (JPL, which includes Reliance Jio) is focusing on other key areas for revenues. That is important because the bulk of JPL’s revenues come from Reliance Jio, that too from mobile operations.

In its investor presentation last week, RIL said one focus area is fibre-to-the-home (FTTH) broadband service, which is being rolled out aggressively across the country (and could bring in additional ARPUs of Rs 500-700 a month per subscriber). RIL expects revenues from this segment to go up from a pipeline of offerings — smart speaker linear TVs, and Internet of Things. It also detailed its push in the enterprise business with bundled offerings, just like in telecom, for small and medium scale enterprises.

It is planning a killer bundled offering, as it did with the launch of the feature phone, to woo the remaining 400 million 2G customers waiting to move to 4G.

And finally, it said it would push aggressively to sell its new post-paid offerings (which was not a priority before) bundled with Over the Top (OTT) platforms to grab some share of this market where Bharti and Vodafone India Ltd (VIL) are entrenched with ARPUs double that of pre-paid services.

But it is precisely in these growth plans that it faces tough competition from Bharti. In FTTH, for instance, RIL plans to reach 15-20 million homes. Just a few months ago, it reworked its tariff plans, bundling them with free OTT platforms. In its investor presentation it said the business is scaling up robustly but gave no numbers (Jio had about 1.7 million customers in October and around 2 million in December).

Bharti Airtel, a slow and steady player in this space for years, has stepped on the accelerator. It plans to roll out FTTH from 100-plus to over 1,000 cities in 12-18 months (tying up with local cable operators for last mile) and wants to reach 40 million households. And it is in a head-to-head battle with Jio in terms of pricing and bundled offerings. In October, Airtel had acquired 2.7 million subscribers.

In the enterprise business, Airtel and the Tata group are well ahead, controlling over 75 per cent of the $3.6 billion of the enterprise communication business that comes to telcos. But the battle lines are being drawn, with Airtel signing a multi-year deal with Amazon AWS and Jio with Microsoft. Jio is targeting the unserved small and medium business market of 11 million customers, and Bharti the high-end corporate market. But experts say it is a matter of time before the two jostle for each other’s markets.

The next big trigger for growth has to come from monetising its digital platform. For instance, just like Google and Facebook, it can leverage its 400-million plus customers to generate advertising revenues. Bofa Global Research estimates it should be able to garner around 6 per cent of digital revenues by 2022, going up to 8 per cent in a few years.  

Its media and entertainment offerings (Jio TV with 100 million-plus subscribers and Jio Cinema with 50 million-plus) are available free to mobile customers — unlike competitors such as Netflix, Hotstar-Disney, Amazon and Zee, which are pushing for a combination of subscription and advertising for their premium offerings. The super app, MyJio, has over 300 million downloads — offering an attractive opportunity for advertising and monetising.    

RIL has also invested around $2 billion for stakes in over 35 apps apart from building its own, offering the opportunity to generate revenues. In education, RIL has Embibe, but it is way behind the big boys in the game such as Byju’s (valued at $ 11.1 billion) or Unacademy ($2 billion).  In healthcare, it has JioHealthHub.    

Of course all this does not mean it will stop grabbing a larger share of the subscriber pie, especially with Vodafone Idea losing customers fast.

The magic answer lies in its plan to bundle its low-cost 4G smartphones with Google to woo 2G customers (under Rs 5,000) and upgrade those who want something more than a feature phone. The question is how quickly Jio can get these plans off the drawing board.