Reliance Jio Fiber pricing non-disruptive; execution, service key: Analysts

With the base pack starting at Rs 699 that offers connectivity speed up to 100 megabits per second (Mbps), the pricing of Reliance Jio GigaFiber is non-disruptive, believe analysts at Jefferies, who also suggest that the last mile connectivity and customer service now hold key for Reliance Industries’ mega telecom venture.

On Thursday, Mukesh Ambani–controlled Reliance Industries (RIL), commercially rolled out its fiber optic network – Reliance JioFiber – offering six plans for the consumers to choose from. Monthly prices vary from Rs 699 (plus GST) to Rs 8,499 (plus GST) with speed ranging from 100Mbps to 1Gbps and data limit from 100 GB to 5,000 GB. There is an upfront payment of Rs 2,500 (of which Rs 1,000 installation charge).

“Across packs, the price is 12-23 per cent lower than Airtel but similar to or even slightly higher than local broadband providers. The speeds offered are higher in low-end plans. With pricing in-line with peers, key for subscriber traction will be reach and customer service,” wrote Somshankar Sinha, managing director and head of equity research for India at Jefferies in a recent co-authored report with Piyush Nahar and Pratik Chaudhuri.

Home broadband market in India, reports suggest, is still under penetrated with only 18 million connections. Of these, nearly 50 per cent are BSNL/MTNL. Additionally, only 7 per cent of the connections are fiber. Jio's reach of 1,600 towns and fiber layout of 7,00,000 kilometers (rising to 1.1 million kilometers going forward) is a key positive as it likely will reach most potential customers, analysts say.

“Unlike mobile, fixedline has a high service component in terms of providing support in case of issues. Hathway and Den, in our view, can aid in this given their existing over 14 million cable home connections. Their local support team can provide timely customer support and reduce downtime for JioFiber,” the Jefferies report says.

Jio is targeting 20 million homes and 16 million enterprises across 1,600 towns and aims to complete the roll-out in 12-18 months. On the other hand, Sunil Mittal-owned Bharti Airtel has a current subscriber base of 2.3 million and 10 million home pass, reports indicate. 

“Given the current fixed broadband subscriber base of 18 million, it implies doubling of the market. We expect though that roll-out will be gradual given that pricing is not as disruptive as was in mobile and challenges in roll-out. We believe success will depend on the customer service, including support in down-time and other issues,” Jefferies says.

At the bourses, however, all telecom and related stocks – except Bharti Airtel – have underperformed. Reliance Communications (RCom), Vodafone Idea (Voda Idea), MTNL, Aksh Optifibre, tejas Networks, Vindhya Telelinks and GTPL Hathway have slipped 21 per cent to 95 per cent, ACE Equity data show. Bharti Airtel is the sole counter that has given a positive return during this period, rising around 21 per cent and even outperforming the S&P BSE Sensex that moved up nearly 1.6 per cent.

Going ahead, Bharti Airtel (Bharti) plans to shut down its 3G services by December 2019-end and refarm the entire spectrum to 4G keeping minimum spectrum for 2G. The company has also guided for lower capex in FY20 vs FY19 amid growing demand for data services.

Given this backdrop, analysts at ICICI Securities expect Bharti and Vodafone Idea (VIL) to realign their spectrums with data demand, which can significantly boost capacity.

“We estimate spectrum refarming will increase the number of 4G carriers for Bharti and VIL’s by 42.5 per cent and 61.9 per cent respectively. Further, the capacity increase will come at minimum cost. Bharti is our preferred stock in the telecom space,” wrote Sanjesh Jain, an analyst tracking the sector in a recent report.