Reliance Industries surprised the market by posting a better-than-expected set of numbers, and analysts applauded the overall performance. At the same time, anxiety over the company’s telecom business has increased.
HDFC Securities, commenting on the company’s numbers, has titled its report, 'Core growth intact, telecom the spoiler?' The broking firm says that with plans to invest $16 billion in telecom, Reliance Jio will launch its services by early 2016.
However, the report says it is difficult to ascertain the returns on these investments. That is a problem that almost all the analysts are facing. Since the investment is a large part of the balance sheet, attaching a value to the operations is very important, especially when some other businesses of the company are not doing too well.
ICICI Securities says that since the Exploration and Production (E&P) business is losing significance on decline in oil and gas prices, uncertainty on R-Jio business strategy continues to concern investors. Reliance would be foraying into selling branded mobile handsets called ‘LYF’, adding to the confusion surrounding the launch of Jio services, says the report.
Analysts' obsession with Jio will only increase as it approaches its launch date. Reliance has been delaying its launch date on account of teething problems. Probably sensing the anxiety, the company has given more information in a presentation to the analysts. We bring out highlights on Reliance Jio based on the presentation and analyst interaction.
1. Network spread-out: a) Largest deployment of end-to-end all-IP network in the world, b) Network of nearly 250,000 route km of fiber optics, c) Future proof digital backbone for a full IP network, d) Fiber footprint to be doubled in 3 years, e) Rollout of last-mile fiber to address fiber to the home.
Edelweiss notes that Reliance Jio has substantially completed network rollout across the country, which is currently being tested and optimised. Beta program will be ramped up over the next few weeks, and projects FY17 will be the first year of commercial operations. The company is targeting to gain 1 mn subscribers at the time of commercial launch.
2. Investment on spectrum: Reliance has already invested Rs 95,000 crore in the telecom venture which is likely to exceed Rs 100,000 crore by launch date. Total cost of spectrum till date has been $5.4 billion for 751 MHz across 22 circles.
The company has further entered into an arrangement with Reliance Communication in 800 MHz across 7 circles. The company in the analyst meet highlighted that more spectrum is likely to become available in the 800MHz band and footprint can be enhanced based on business requirement via spectrum sharing, trading and M&A as well.
Edelweiss says this may mean that Reliance Jio could possibly tie up with Reliance Communication for spectrum sharing or trading or it may evaluate players like Videocon for possible M&A opportunities and/or spectrum sharing/trading possibilities.
3. Maximum number of towers: Jio will have over 75,000 towers with electricity board connectivity and battery back-up at launch across the country. Relatively, Bharti Airtel has 48,825 3G sites (as on Mar 31, 2015), while Idea has 33,621 3G sites (as on Jun 30, 2015), says Edelweiss.
4. High-speed network: According to an Edelweiss report Reliance Jio can support five times more data from its 4G site compared to a 3G site of Bharti or Idea. The 4G LTE towers have doubled spectrum capacity (20 MHz versus 10 MHz for Bharti/Idea 3G sites) and 2.5 times more efficiency.
5. Higher speed revenue: Edelweiss’ report also says that 4G average revenue per user (ARPU) in China is 1.7 times higher than blended ARPUs. Also, data usage has been five times of blended data usage. Reliance could be targeting ARPU between Rs 300-500 versus Rs 237 of incumbents. Reliance Jio’s earnings will be very sensitive to ARPUs and tower operational cost. According to Edelweiss’ estimates, 30% higher ARPU and 30% tower operational cost savings could enhance RIL’s consolidated earnings by 9.2% in FY18.
6. Distribution strategy: Reliance Retail will be launching a wide range of premium to affordable 4G LTE smartphones under its “LYF” brand. As part of its distribution strategy Reliance will have over 1,000 Jio centers across the country and its distribution network will include 0.5 million connectivity outlets and 1 million additional recharge outlets at launch. Jio is proactively tying up with smartphone brands (Indian and global), chipset manufacturers and OEMs directly. In addition, Reliance Jio is working with OEMs for pocket router solution which can seamlessly connect any 2G/3G smartphone to 4G services network.
7. No glitches in technology: Finally, on the question of technology, the company has said that Jio lab tests and trials have been successful. They have not faced issues in interconnect of VoLTE calls with 2G/3G networks.