Reliance financial results always have surprises, but the latest from Reliance Jio Infocomm, the telecom subsidiary of Reliance Industries (RIL), had eyebrows arching upwards. Reliance Jio’s September quarter results, the first time the new telecom entrant issued a standalone profit and loss statement, showed it had posted a net loss of Rs 271 crore on revenues of Rs 6,147 crore; but it also declared that it had made operational profits or positive earnings before interest and tax (Ebit) of Rs 260 crore.
We all thought Jio was bleeding heavily from huge investments and freebies. But, wonder of wonders, it logged Rs 156 for the key performance parameter of average return per user (ARPU).
Reliance Jio launched commercial operations last September on the back of free promotional voice and data packages, and, expectedly, grew rapidly adding over 100 million subscribers in the first six months of operations. From April, once data services became paid, Jio’s pace of growth has become slower – the network added 15.3 million subscribers in the last quarter. But, the telco couldn’t hope for a better beginning. In barely a year of operations, it is the fourth largest operator with 138 million users, and it has tied its competitors in all sorts of knots with ‘predatory pricing’.
Consolidation Phase
A closer examination of the last quarter results shows that there has been some ‘creative’ accounting to show performance better than it really is. For instance, the ‘Summer Surprises’ scheme, which was sold over March and April this year, gave customers three months of free service, but charged Rs 303 for the fourth month. Therefore, though payments were made at the time of purchase in March and April, the revenue was accounted for in July. This has probably bloated revenues and shown ARPU to be much higher than it actually is for the quarter.
Hereon, the phase of the telecom industry battle has changed. Jio has spent close to Rs 2 lakh crore ($30 billion) setting up its unique network and towers, and demolishing competition. It is now payback time, and the free and discounted packages will be slowly phased out as the company looks to a period of recovering its investments. Anshuman Thakur, head of strategy and planning at Jio, said that Jio was not looking at any further big-bang investments, and would focus on consolidating revenue.
In the most recent tariff plans for post-paid customers, Jio has announced the death of the Rs 309 data plan. For the flagship Rs 399 plan, which most customers are on, Jio continues with 1GB 4G data per day with unlimited free calls and text messages, but the package is now for 70 days instead of the earlier 84 days. Similarly, for its Rs 509 plan which offers 2GB 4G data per day, the validity has now been reduced to 49 days from the earlier 60 days.
Space for Competitors
This rollback of ‘predatory pricing’ will give the beleaguered competitors space to offer more flexible and maybe ever better-than-Jio packages. Perhaps, they can even move beyond defensive tactics of stopping migration to poaching on Jio for new customers.
There also needs to be an investigation into the competitors’ charge that the regulatory regime is favouring Jio at their expense. They say the Telecom Regulatory Authority (Trai)-mandated mobile termination charge (MTC) of 14 paise a minute is working in favour of Jio. MTC is the carriage charge a mobile company pays to another when a call made from the home network ends in the other network. Airtel and others say the cost per minute for interconnection is around 35 paise, and the policy of free calls by Jio is effectively being subsidised by the others. Airtel claims it is taking a hit of Rs 550 crore a quarter on this account.
What nobody can dispute is Jio has completely disrupted the industry to the benefit of consumers. Jio’s new 4G LTE technology or voice over LTE (VoLTE only) operation, that bypasses the 2G and 3G stages, has brought internet services to millions of new customers. But most importantly, the super profits the telecom industry milked is now in the past. Studies show industry returns or Arpu rising to Rs 155 in FY14, peaking at Rs 163 in FY15, and then going into a decline after the entry of Jio. For FY18, the expected industry Arpu is pegged at Rs 128!
Let the war carry on! Slimmer margins for the operators, and cheaper packages for the consumers.
(The author can be contacted at gurbir1@gmail.com)