Reliance Industries received a muted response to its March 2015 quarter results where the company posted record profits despite a poor show from its oil and gas divisions. Refining and petrochemicals helped the company post its highest-ever profit, but the markets and analysts were not too impressed by the numbers. Reliance Industries was trading at Rs 1,015 nearly 2.2% lower than the levels it traded at prior to the results.
Markets were eagerly waiting for the launch date of the company’s telecom venture – Reliance Jio. But the management decided to keep everyone guessing on the launch date. Nevertheless, its analyst presentation and interactions helped us create a sketch of what’s happening with Reliance Jio, especially with some interesting information on the test run, which was launched on December 28, 2015.
Here are the five latest developments in Reliance Jio
1. About 0.5-0.6 million Reliance group employees, partners, vendors and associates were given a full-scale service offering of Reliance Jio on December 28, 2015. Reliance’s presentation says the initial feedback has been very encouraging and the company has established smooth operations of all aspects of network and business. All data applications are being tested extensively. Foreign broker Credit Suisse had conducted a field trial of their own and found that Jio’s network coverage was at par with incumbents in urban areas and that its speed was 7-15 times faster.
2. As had been expected, data usage with technology upgrades is increasing. In the first month itself, average monthly consumption per user was in excess of 18 GB and increasing rapidly. In an earlier slide, the company had said that average monthly data usage over the next five years globally was expected to be between 8 and 10 GB, while in the developed world, it would be in the range of 18-20 GB. Jio already touching 18-GB levels could be on account of the nudge from the company to its selected users to test the system to its maximum. Average voice usage touched 250 minutes within first month. The launch is now being upgraded to others in the eco-system. The test program is being progressively upgraded into commercial operations in the coming months.
3. Reliance Industries has mentioned in its presentation that the company’s network rollout has been substantially completed. The company is in the process of receiving 800 MHz spectrum in other circles that will be integrated shortly. Morgan Stanley in its report has pointed out that the company had indicated that spectrum (850 MHz) from Reliance Communication (RCom), owned by Anil Ambani, will be integrated in coming weeks, setting the stage for a complete rollout. Currently, Reliance Jio has 850 MHz spectrum in 10 of 22 circles. It has entered into partnership with RCom to trade spectrum in nine circles and share in 17 circles in 800 MHz. On April 22, 2016, the DoT approved sharing of spectrum in nine circles. Morgan Stanley says that Jio can have a couple of millions of subscriber base by the time the service is launched, 30 million by FY17 and 60 million by FY18.
4. Telecom investments are now around Rs 1.2 lakh crore (around Rs 1.5 lakh crore due to front loading) which includes Rs 45,000 crore of equity, Rs 33,200 crore of debt and balance being deferred spectrum payables and vendor financing. Morgan Stanley has mentioned in its report that management suggested that it plans to spend another Rs 30,000 crore in FY17 to lay more fibre, installing more towers and small cells, as well as payments related to spectrum sharing/trading deal with RCom. Jio currently has 270K Rkm (route KM) of fibre, 90,000 towers (of which 50 per cent are owned) and 50,000 small cells. It intends to add another 30,000 RKm of fibre, more than 10,000 towers and double the small cells in FY17, which would help it to increase its coverage to reach around 90 per cent of the population from 70 per cent currently.
5. Handsets are key to the rollout of Jio which is why it has till date introduced four models of 4G/VoLTE-enabled handsets with prices points ranging between Rs 6,000 and Rs 19,000. Reliance has pointed out that about 45 million LTE handsets are there in the market. LTE smartphone market share has improved from 11 per cent a year ago to 62 per cent in January 2016. Almost all new launches are LTE enabled. All models of Samsung, Apple & LG support VoLTE and large portfolio of Micromax, Lava and over 20 plus other brands have shifted to VoLTE. Average selling price of LTE smartphones has reduced from Rs 25,000 a year ago to around Rs 10,000 now. Large number of less than Rs 5,000 LTE phones are in the market with the cheapest being less than Rs 3,500. Morgan Stanley report points out that 150 4G models are available in the market with around 60 per cent priced below Rs 12,000.
With nearly a fourth of Reliance Industries balance sheet invested in Reliance Jio, there is no surprise that the key trigger for the company will be the success of this division.