Jio vs Airtel vs Vodafone Idea - Subscriber Numbers upto July'19

Every month we have been reading reports of Reliance Jio adding a few million subscribers and Airtel + Vodafone Idea losing a few million of theirs. July'19 is no different. Reliance Jio maintained it's subscribers momentum with addition of another 8.5 million subscribers in July'19, taking it's total to almost 340 million. Vodafone Idea lost a smaller number of users compared to the previous 2 months. It's total subscriber base now stands at 380 million, down by 3.4 million. Airtel has now included Tata Tele's subscribers in it's count. Tata Tele had about 11.5 million subscribers in June'19. But Airtel+Tata Tele's subscriber count has jumped from 320.3 million in June'19 to 328.5 million in July'19. That means Airtel also lost nearly 3.2 million subscribers during July'19.

All the three operators have seen their VLR % erode during July'19. Starting with Airtel, it's own VLR % at the end of June'19 was 98.5%, which dropped to 94.95% in July'19. This is mainly due to addition of Tata Tele's subscribers in it's total count. Most of these Tata Tele's subscribers were already using Airtel's network on Roaming. Hence this had helped boost Airtel's VLR % for the previous few months, as can be seen from the table alongside. Airtel's VLR base has dropped from 315.5 million to 311.9 million, i.e. a drop of 3.6 million active users. The same at the end of January'19 was 331.2 million. That means Airtel has lost close to 16 million active users during these 6 months.

Looking at Vodafone Idea, it is already tainted to be the worst performing Telecom operator in terms of subscriber & revenue growth in the recent months. The effects of large-scale Network Integration activity across several circles has had a severe impact on Vodafone Idea's active subscribers count post March'19. At the end of March'19, Vodafone Idea's Total subscribers were 395 million, which is now down to 380 million, i.e. a loss of just 15 million users in 4 months time. Nothing alarming. But during the same period, it's VLR % has dropped from 93.3% to 81.9%, in a staggered manner. This means it's active subscriber count has dropped from 368 million to 311 million over those 4 months, i.e. a loss of 57 million, which is large figure. An average of over 14 million a month!! This is substantially more than what Jio is adding every month.

Over the last month or so, we have seen several announcements from Vodafone Idea about launch of TurboNet 4G services in more & more cities across the country. TurboNet 4G is the brand they have adopted for announcing the launch of Integrated network for Vodafone & Idea combined. TurboNet 4G also represents the launch of a network which is expected to offer wider coverage & much larger capacity than before, with the help of the largest spectrum pool amongst all operators in India. This should help improve adoption of 4G services amongst Vodafone & Idea users and also attract users from rival networks. We may not see much of it's effect in August numbers, but I am sure we will start seeing a boost in numbers for Vodafone Idea from September'19 onwards. Apart from launch of TurboNet 4G, Vodafone Idea has also introduced lower denomination recharge options for users to remain active on the network.

Coming to Reliance Jio, it's monthly subscriber addition numbers have been very consistent. It seems as if the company is despatching only a limited number of simcards / Jio Phones every month. For the 6 months between January to July'19, Jio's Total subscriber base went up from 289 million to 340 million, i.e. 51 million new additions translating into 8.5 million every month. That is precisely the number they are adding every month. Even their VLR % is steady around the 83-84% mark. Looks like everything is working in a very measured fashion. Sometimes even raises a doubt in my mind whether these are genuine numbers or manufactured ones.

Airtel & Vodafone Idea are now neck-to-neck in terms of active subscribers. It will be an interesting race from September'19 onwards. Airtel might inch ahead in August as Vodafone Idea's TurboNet 4G marketing started only in the latter half of August. In about 4 to 5 months time, Jio will close the gap between it's Active base numbers and the other two, which currently stands at about 29 million. And most probably Jio will just zoom past both of them. Both Airtel & Vodafone Idea are unlikely to offer something like the Jio Phone, which is what is pulling major numbers for Reliance Jio since the last couple of years. Both Airtel & Vodafone Idea will prefer to expand their 4G network coverage to get closer to that offered by Jio currently and target the Smartphone users to upgrade to 4G or pull a few dis-satisfied users from Jio or BSNL.

That brings us to the comparison of Wireless Broadband numbers of the 3 operators. Jio's entire subscriber base is counted as Broadband user base as it's 4G-only network. In case of both Airtel & Vodafone Idea, it comprises of 4G and 3G subscribers. The 3G subscriber base for both operators is rapidly falling. Both have less than 25 million 3G users on their Networks as of July'19. By the end of this year, both operators are expected to shut down 3G networks as the same spectrum can be used to add to their 4G capacity. So all these 40 to 50 million 3G users will be forced to upgrade their handsets and start availing 4G services over the next 3 to 6 months.

Airtel's Wireless Broadband user base has been steadily increasing over the last 6 months. It went from 110 million in January'19 to over 121 million in July'19, i.e. at a pace of almost 2 million a month. On the other hand, Vodafone Idea had a tough time trying to maintain it's wireless broadband user numbers between February'19 to May'19, when it lost about 1.25 million users. It has seen some increase for the last 2 months of June & July'19. I am pretty sure that this will pick up pace from September'19 onwards & we could see Vodafone Idea adding 2 million+ Wireless Broadband users every month. This race between Airtel and Vodafone Idea will get very interesting by the end of 2019. I am excited to see which one of the two proves to be a bigger challenger to Jio in the year 2020. So far we all know that Airtel has performed better than Vodafone Idea. But there are reasons for the same. As Vodafone Idea starts pushing it's upgraded network services through formal advertisement channels, we should see the company numbers start improving.

How bad is Vodafone Idea's business doing?

Vodafone Idea Ltd. announced it's Q1FY20 Results about 10 days ago. Before the announcement, it's share price was trading close to Rs.10 levels, resulting in a Market Cap of just about Rs.28,000 crores. This in itself was ridiculous valuations for a company that still is India's No.1 or 2 mobile operator with over 300 million active users.

After the result announcement, Vodafone Idea's share price has crashed and is now close to Rs.5 levels!! That means it's Market Cap is just about Rs.15,000 crores now. This is an even super-ridiculous valuation. Now the big question is: Are things really so bad with the business of Vodafone Idea? Or is the market writing-off it's chances of survival too early?

Let's put some things in perspective. In 2017, when Vodafone India and Idea Cellular announced their decision to merge, they were the No.2 and No.3 mobile operators in the country, with each having a subscriber base of between 180 to 200 million. By the time the merger was approved in July-August 2018, they together had over 400 million subscribers. It was widely expected at that point that atleast 20 to 30% of their subscribers could be common, holding sim cards of both Vodafone & Idea. That means about 40 to 60 million subscribers of Vodafone, could also be having Idea sim card in their Dual-sim phones. Hence it was obviously expected that most of these subscribers will stop using either 1 of the two sim cards after the merger of the two operators.

Now look at the table alongside. The merger was formally concluded on 31st August'2018. By the end of that quarter, it's VLR (active) user base stood at just under 403 million, which started dropping at a faster and faster pace over the next 3 quarters and now stands at 322.4 million. That means Vodafone Idea has seen a drop of nearly 20% of it's active users base, most of it after Q3FY19. This should have resulted in a significant drop in the company's revenues. But if you look at the Total Income figures from Q3FY19 onwards, there has been barely a drop of about 3% till now.

What does this indicate? It clearly indicates that most of the 20% users who exited the Vodafone Idea network during the last 3 quarters, were not generating any revenues for the company. Isn't this good that the free-loaders have been removed from the network?

Now let's look at the other developments: Post the merger getting officially effective, the company had a massive task at hand, which was to integrate it's Networks, it's Administrative offices, it's Retail units, it's Staff, it's IT Systems, etc. After a couple of months of planning, the integration activities must have started sometime in November or December'2018. The biggest one of these to Integrate the Network sites & combining the Spectrum resources. This alone will take about 18 to 24 months to complete as they will have to physically do the integration activities on about 2,00,000 towers.

During this Network integration work, the Quality of Service certainly must be getting affected in regions where it is being undertaken at different points of time. Hence the company has not been aggressively marketing it's services to attract newer users on it's network. It is just trying to hold on to it's revenue-generating users. And I think it is doing a very fine job with it as it's Revenues are pretty stable even during this massive Network integration activities.

Once the company will have finished integrating & upgrading the networks in most of the Urban areas or high-population regions across the country, I am expecting the company to get lot more aggressive with it's marketing. At that time the company will have lot more capacity & coverage to offer to all it's old & new users. I think that point is still a couple of quarters away. Possibly during Q3FY20 or Q4FY20 is when Vodafone Idea is expected to get aggressive with it's marketing efforts.

Even with limited marketing efforts, Vodafone Idea has managed to increase it's 4G user base from 66 million to 85 million over the last 3 quarters. It's pace of growth is certainly slower than that of Airtel, but we cannot ignore the fact that Airtel is going full throttle with it's advertising & marketing efforts, while Vodafone Idea has curtailed the same till it's network is ready to offer better coverage & quality of service. The Total Data Volume on the network is increasing at a pace faster than the increase in number of 4G subscribers, reflecting the fact that each user is now consuming higher quantity of Data and the network is also able to offer the same. In the coming quarters, when the 4G user base is set to grow at a faster pace, we can expect to see the Data Volumes to grow even faster. Voice Minutes on the other hand are reporting a de-growth, mainly because of exit of many voice-only and that too incoming-only users from the network. The average voice usage per user is actually reporting an increase.

Going forward, I am expecting the consistent drop in VLR base, Quarter after quarter, since the last few quarters, to start reversing, possibly from Q3FY20 onwards. Even in Q2FY20, the drop in VLR base will be very small. Once the VLR numbers get steady, Vodafone Idea will start reporting some decent growth in it's Revenues on the back of increase in proportion of 4G users. Vodafone Idea's EBITDA margin currently is about 15 to 17%. I am expecting this to improve to about 22 to 25% in the next few quarters, mainly because of reduction of operating costs due to closure of more & more duplicate network sites of erstwhile Vodafone & Idea. By the end of this fiscal, most of the one-time costs in terms of compensations & penalties towards early termination of rental agreements with various Tower companies, will also be over. Then we will see massive change in the Net Loss figures reported by the company. From the current Quarterly Net Loss figures of over Rs.4,500 crores, we could see the figure drop to well under Rs.1,000 crores, possibly from Q4FY20 or Q1FY21.

Considering all these factors, do you think Vodafone Idea's business is doing so poorly to deserve a Market Cap of just about Rs.15,000 crores??

Do Share your thoughts on this report or Views on the points discussed. Awaiting your Comments.

Telecom: Dec'16 Quarter AGR numbers - Who lost how much??

Soon after Reliance Jio's 1st September'16 announcement of commercial launch on 5th September'16 with Welcome Offer, I had presented my estimates expecting a drop of anywhere between 5 to 10% in Total Revenues compared to June'16 quarter numbers. I had also mentioned that the June'16 quarter numbers will continue to remain a benchmark for Quarterly Revenues for most operators for a considerable amount of time. We now have the December'16 Quarter AGR numbers for all Telecom operators in India. While most operators have reported a drop within my expected range, some smaller operators have even exceeded my expectations with over 10%. Let's have a quick look at the Quarterly Progress of AGR numbers for the Top-6 Telecom Operators in India, via the following charts:

Amongst all the Telecom Operators in India, only the Top-3 were posting a healthy rate of growth in Revenues until June'16, which is a well-known fact. It was also expected that the Top-3 operators (Airtel, Vodafone & Idea) will be the least affected by Reliance Jio's onslaught. Hence it becomes even more interesting to check whether these expectations have been met or not.

Let's start with India's No.1 operator: Bharti Airtel, which reported an AGR of Rs.12496 crores in Dec'16 quarter. This is a 8% Q-o-Q drop and 10.6% drop compared to the peak hit in June'16. In fact Airtel's Dec'16 number is nearly 2% lower than even Dec'15 number. For Bharti Airtel, the Top-5 circles which have reported the largest actual drop in AGR number for Dec'16 compared to June'16 are: Karnataka (Rs.223 crores), Bihar (Rs.163 crores), Rajasthan (Rs.133 crores), J&K (Rs.126 crores) and Delhi (Rs.106 crores). Punjab is the only circle where Airtel's Dec'16 AGR is slightly higher than it's June'16 AGR. The Top-5 circles in terms of largest Percentage Drops between the two quarters are: J&K (64.8%), Kerala (20.5%), Bihar (14.8%), UP-West (14.4%) and Rajasthan (14.2%). Airtel's largest circle in terms of AGR continues to be Karnataka despite the 13.9% drop in AGR from June'16 level. The Best-5 circles for Airtel, who have reported least change in AGR since June'16 are: Punjab (+2.1%), North-East (-3.5%), Kolkata (-4.8%), Tamil Nadu (-5.2%) & Andhra Pradesh (-5.9%).

Vodafone India reported an AGR of Rs.8305 crores in Dec'16, a Q-o-Q Drop of 5.1% and a drop of 7.8% compared to June'16 AGR. Vodafone India's AGR drop is certainly a better performance compared to Bharti Airtel, despite having lesser 4G coverage compared to the latter. For Vodafone India, the Top-5 circles which have reported the largest actual drop in AGR number for Dec'16 compared to June'16 are: Delhi (Rs.130 crores), Gujarat (Rs.105 crores), UP-East (Rs.100 crores), Maharashtra (Rs.74 crores) and UP-West (Rs.36 crores). The Top-5 circles in terms of largest Percentage Drops between the two quarters are: Delhi (16.2%), Himachal Pradesh (15.5%), Madhya Pradesh (14.6%), Haryana (12.9%) and UP-East (12.7%). The Best-5 circles for Vodafone, who have reported least change in AGR or reported Growth since June'16 are: North-East (+4.1%), Karnataka (+3.5%), Kerala (+2.2%), J&K (+1.8%) and Andhra Pradesh (-2.3%). Gujarat circle continues to be the highest AGR-contributing circle for Vodafone India, but is closely followed by Tamil Nadu & Maharashtra circles.

India's No.3 operator Idea Cellular reported an AGR of Rs.6958 crores in Dec'16, which is a Q-o-Q drop of 4.9% and a drop of 10.8% compared to June'16. For Idea Cellular, the Top-5 circles which have reported the largest actual drop in AGR number for Dec'16 compared to June'16 are: Madhya Pradesh (Rs.145 crores), Maharashtra (Rs.122 crores), Kerala (Rs.109 crores), UP-West (Rs.91 crores) and Andhra Pradesh (Rs.87 crores). The Top-5 circles in terms of largest Percentage Drops between the two quarters are: J&K (33.7%), Himachal Pradesh (26.9%), Bihar (17.2%), Haryana (16.1%) and Madhya Pradesh (15.4%). The Best-5 circles for Idea Cellular, who have reported least change in AGR or reported Growth since June'16 are: Kolkata (+45.9%), Tamil Nadu (+7.6%), Delhi (+6.8%), Karnataka (3.8%) and West Bengal (-2.9%). The Maharashtra circles continues to remain the largest AGR-contributing circle for Idea Cellular by a large margin.

BSNL+MTNL combine is probably the only operator which has reported no Q-o-Q drop in AGR and an improvement in AGR in Dec'16 when compared to June'16 AGR number. The PSU combine reported an AGR of Rs.3869 crores in Dec'16, which is about 4.9% higher compared to June'16 number. The volatility in Wireline Revenue numbers for BSNL & MTNL seems to have helped the operators to report an improvement in AGR for Dec'16. The spike in March'16 AGR followed by a sharp drop in June'16 number is proof of this phenomenon. Hence there is no point in studying the circle-wise numbers for BSNL & MTNL too seriously. One thing is quite certain, BSNL & MTNL combine is slated to report over 10% drop in AGR for FY'17 compared to FY'16 numbers.

Tata Teleservices was the biggest loser in the October-December'16 quarter in terms of number of subscribers lost. During the quarter Tata Tele lost nearly 8% of it's active (VLR) subscriber base or 3.65 million users. But despite being much much smaller than both Aircel & RCom in terms of number of Subscribers, Tata Tele's AGR for Dec'16 is still nearly 25% larger than Aircel and nearly 125% larger than RCom. This speaks volumes of the poor quality of Aircel & RCom's subscriber base. Tata Tele's Dec'16 AGR of Rs.2209 crores is about 12.7% lower Q-o-Q and about 15.7% lower compared to June'16 AGR. Tata Tele's AGR from 15 out of 19 operating circles has reported a double-digit percentage drops in Dec'16 compared to June'16. It has lost big time even in it's 3G circles. This alarming pace of revenue decline looks extremely scary. Tata Tele

needs to take some swift action towards consolidation or else it will have to die a very painful death. Operators like Tata Tele, RCom & Aircel can come together and offer 3G service in nearly all circles across the country. A good quality 3G service with aggressive pricing can certainly offer a good alternative for several price conscious subscribers across the country.

India is seeing some big consolidation moves in the Telecom sector, something which I had predicted over a year ago. Bharti Airtel has already gobbled up Videocon's Band-3 spectrum, Aircel's Band-40 spectrum and Telenor India's entire business is also being taken over. But the bigger consolidation move is that of Vodafone India with Idea Cellular, which could potentially create India's largest Telecom player, atleast for the time being. Even though the operators will continue to face pressure on Topline, this consolidation will help them rationalise their network resources and save atleast 20 to 30% of their operating costs. The combined entity will also be able to offer wider & stronger 3G/4G coverage across the country to combat competition from Reliance Jio as well as Bharti Airtel.

March'17 quarter is going to be even more painful for all telecom operators, thanks to the continued Free Services of Reliance Jio till 31st March'17. The real competition will start from April'17 onwards when Reliance Jio will finally start charging it's customers for availing it's services. But the new 4G-only operator is expected to remain extremely aggressive with it's pricing in it's effort to pile up large number of paying subscribers in the coming months. The AGR numbers reported by all existing telecom operators in June'16 will continue to remain the peak values for most of them for atleast another 4 to 6 quarters, if not more. I am expecting Reliance Jio to start with a AGR market share of nearly 15% in it's very first Revenue-Reporting quarter of April-June'17. And it will continue to build on it from there with an aim to be the No.1 player in another 3 to 4 years time.

Reliance Industries Ltd. - Segmentwise Numbers Progress

India's No.1 company in terms of Annual Net Profits as well as Market Capitalisation, Reliance Industries Ltd., announced it's Q3-FY'17 numbers yesterday. The numbers were fairly good & mostly in line with expectations mentioned by most analysts. In my report here I will focus on things which are generally not mentioned anywhere else. I like to study the progress of a company on a Trailing-Twelve-Months (T-T-M) basis. The study of T-T-M numbers over a period of last 2 or 3 years gives us a fairly good idea of the company's performance trend.

Before we get to the Segment-wise Numbers, first lets quickly have a look at some of the key Consolidated numbers for Reliance Industries Ltd. The following charts are showing the T-T-M progress of RIL's Total Income, EBITDA, Interest Cost & Net Profit figures starting from the period ending December'13 upto period ending December'16. Have a look at the charts:

After hitting a peak of about Rs.4,50,000 crores in June'14, RIL's T-T-M Total Income figure saw a sharp slide and finally bottomed out at about Rs.2,86,000 crores in June'16. There was nothing wrong with the company's performance during this period. The sharp drop in Total Income was purely due to sharp drop in Product prices. 90% of RIL's turnover is contributed by Refining, Petrochemicals and Oil&Gas Production businesses, all of which derive it's product prices from Crude Oil. The Crude Oil prices had started sliding during the 2nd half of the year 2014 and bottomed out sometime in the early part of year 2016. With the Crude Oil prices slowly moving up over the last couple of quarters, we can already see RIL's T-T-M Total Income figure also reflecting the trend. RIL's T-T-M EBITDA chart gives us a better idea of the kind of performance RIL has managed even during the falling product prices regime. While RIL's Total Income started sliding after June'14, it's EBITDA was quite steady around the Rs.45,000 crores mark till September'15, which means the company was able to protect it's profits comfortably even when product prices were falling as it managed it's raw material cycle too very well.

After September'15, RIL has seen it's EBITDA margins genuinely expand from improvement in process efficiencies at both it's Refining as well as Petrochemicals units. Reliance Industries Ltd. has been undertaking a massive CAPEX program for it's Petrochemicals complex, which is expected to help the company improve it's cost efficiency substantially, which will in turn help the company expand it's profit margins. The commissioning of the CAPEX program has started a few weeks ago & will be done in stages over the next few months. We should start seeing it's impact on the company's results from Q4-FY'17 onwards. On one side we will see RIL's EBITDA from it's primary businesses of Refining & PetChem expand over the next few quarters, but we should also be mindful of the fact that RIL's single largest CAPEX program in it's entire history, Reliance Jio Infocom Ltd, is also expected to start billing it's customers from Q1-FY'18. The commissioning of Reliance Jio Infocom Ltd. is expected to be EBITDA negative for the initial year or two. Hence there is a strong likelihood of RIL reporting a Y-o-Y drop in Consolidated EBITDA for a few quarters, starting from Q1-FY'18. Apart from the drop in EBITDA, RIL will also see it's Interest Cost and Depreciation provisioning shoot up substantially from current levels, which might result in wiping out of most of it's Net Profit, atleast for a few quarters. The first couple of quarters of RJIL's commissioning will be the worst for RIL's financial numbers, but things will progressively improve at a rapid pace after that.

Segment-wise Revenue Performance: Currently RIL reports it's results distributed over 5 segments: Refining, Petro-Chemicals, Oil & Gas, Retail and Others (which includes it's Media & Broadband businesses). Once RJIL (Jio 4G) starts billing it's customers, it will form a separate segment.

Let's look at T-T-M progress of RIL's 4 basic operating segments (excluding Others). RIL's primary businesses of Refining & Petrochemicals continue to contribute nearly 90% to the company's Revenues and are responsible for the entire Net Profits. In fact the company is using strong Cash Flows from these businesses to help support & fund it's investments into newer avenues like Media & Telecom.
Refining business of RIL has seen it's T-T-M revenues falling from a peak level of little over Rs.4,00,000 crores to around Rs.2,25,000 crores levels (a drop of about 45% from the peak), which has been steady since the last 3 quarters. Despite the Q-o-Q rise in Crude Oil prices over the last couple of quarters, we are yet to see a noticeable uptick in RIL's T-T-M numbers, mainly because there has not been any significant change in Y-o-Y prices of Crude Oil. Jan-Mar'16 was the quarter when Crude Oil prices had hit the lowest levels in recent years of less than $30 per barrel (though for a short duration only). Hence if Crude Oil prices stay at current levels of $50+ levels during this current quarter, we could see RIL post healthy Y-o-Y growth in Revenues from it's Refining business.
The Petrochemicals business of RIL has done far better than it's Refining business. The T-T-M revenues from RIL's Petrochemicals business dropped just about 20% from it's peak values, bottomed out by the end of June'16 quarter and has already started posting healthy Y-o-Y growth, which is clearly noticeable in the charts. With completion of major CAPEX investments into the Petrochemicals business and it's commissioning, we could see momentum building up further in RIL's Petrochemicals revenues and even bigger momentum in it's profits from these units.
The Oil & Gas production business has faced an even bigger brunt of the fall in Crude Oil prices as it suffered from not just price crash, but even the production at several of the units had to be curtailed temporarily as it because economically unviable to produce when prices were under $45 per barrel. Over the last few months, the Crude Oil price has remained above the $45 levels quite consistently with not much of wild swings as before. Hence many of the Shale Gas units, which had shut production last year, could start producing again now. Any recovery in Revenue levels for RIL from this business will depend on Crude price stability above a certain level and the way the production is ramped up at producing fields.
The Retail business of RIL was growing it's T-T-M Revenues at a steady pace of around 4% Q-o-Q until March'16. This was a healthy growth rate given the extensive competition in this field from not just other Retail chains and standalone stores, but also from the e-commerce biggies. Over the last 3 quarters RIL's Retail business has been posting much faster growth in Revenues, thanks to increased footfalls in it's stores, especially the Reliance Digital stores for Jio Sim cards and LYF devices. Reliance Retail has also started supplying it's devices to other standalone mobile stores in thousands of smaller towns since about June-July'16. RIL's Retail business is now very close to hitting the Rs.30,000 crores T-T-M turnover mark and going by the healthy expected growth pace, we could very well see it hitting the Rs.40,000 crores turnover mark anytime over the next 3 to 5 quarters.

Segment-wise Profit (EBIT) Performance: The charts representing T-T-M Profit (Earnings Before Interest & Tax) for RIL's different segments

show quite different patterns, especially for Refining & Petrochemicals businesses. RIL's Refining business has seen a sharp improvement in it's T-T-M Profits from levels of about Rs.15,000 crores in December'14 to levels of just over Rs.25,000 crores since the last couple of quarters. The trend of increasing profits seems to have come to a halt now as we can see a plateau formation since the last 3 quarters, which has somewhat coincided with trend reversal in Crude Prices. I think it will be an achievement even if RIL manages to keep it's T-T-M Profits from Refining business steady at current levels even during the period when Crude prices are rising. The Refining business is the main Cash Generator for RIL and hence even if it manages to keep the figure steady at around current levels, it will be a very big positive for the company overall.
The T-T-M Profits from Petrochemicals business of RIL started reporting smart growth from the June'15 quarter onwards. The Profit number has already seen a near 50% increase over the last 7 quarters. The trend of increasing Profits from Petrochemicals business is expected to continue at a healthy pace, given the fact that the CAPEX commissioning is underway. I am expecting RIL's profits from Petrochemicals business to grow atleast another 50% from current levels over the next 3 to 5 quarters.
The T-T-M Profit figures for RIL's Oil & Gas Production business only reflect the disastrous period it has faced over the last 6 to 8 quarters due to falling Crude Prices. In fact curtailment of Production has helped limit the losses to not-so-significant levels. I think we will a trend reversal in these figures after another one or two quarters, provided that the Crude Prices remain steady at current levels of improve further.
RIL's Retail business is doing pretty well on the Profit front too, especially over the last 3 quarters. The T-T-M Profit figure from the Retail business currently stands at about Rs.670 crores. Given the strong growth momentum, I think it will hit the Rs.1000 crores mark in the next 3 quarters for sure. And there is scope for continued long term double-digit Y-o-Y Growth in this business even after that.


Telecom Venture: Reliance Jio Infocom Ltd ( RJIL )has been in the news on a regular basis and it's 'Jio' branded 4G services have been in limelight since Aug-Sept'16. As per latest reports, RJIL has already enrolled over 72 million users for it's 4G services across the country and the number is expected to be around 90 to 100 million by the end of March'17. The primary reason for such a large number of users enrolling for Jio 4G services within a span of just a few months is that it is currently offered FREE. As per latest announcement, the service is expected to remain FREE till 31st March'17. This means that during this period, eventhough RJIL incurs all the operational costs of keeping the network online and continue expanding the coverage & capacity, it will not earn any revenue till the end of the FREE period. Starting from 1st January'17, users of Jio 4G service are entitled to 1 GB of Data at 4G speed per day, after which the speed is restricted to 128 kbps. The users have the option to unlock 4G speed again by recharging their account with Rs.51 (for 1 GB data) or Rs.301 (for 6 GB data). The revenues from these recharge options is expected to be negligible till 31st March'17.

As per my estimate, RJIL's Operating Costs (including Interconnect Cost) to keep the Network online must be easily in the region of Rs.1500 to 2000 crores per month, if not more. That means a sum of around Rs.4500 to 6000 crores per quarter is being spent, without earning any revenue from the 4G service being offered. Remember that the expenditure amount mentioned above excludes the Interest Cost on the Debt raised for this venture. All these Expenditures & Interest Costs are currently being Capitalised and will start getting amortised once RJIL's numbers start getting Consolidated into RIL's Profit & Loss account. All this is expected to hurt RIL's Consolidated numbers very badly once it starts recognising RJIL's numbers. The first couple of quarters will be the worst when RJIL's Net Loss could potentially wipe out RIL's Net Profit from other business segments. Things are expected to steadily improve after that, but the pace of improvement will certainly depend on competitive pressures in the industry. The telecom competitors will also react to whatever tariff plans RJIL finally comes up with and hence it will take not just aggressive tariff plans, but also aggressive marketing to get the revenue momentum going. As per my rough estimates, RJIL needs a minimum Average Revenue Per User (ARPU) per month of Rs.300 from about 100 million Paying-Customers to be able to close to covering all it's Operating Costs and Interest Costs.

In the mean time, this extended FREE service period of RJIL is forcing consolidation within the Industry at a rapid pace. Some smaller operators have sold off their auction-purchased 4G-capable spectrum to larger operators. A few other smaller operators are trying to merge together & form a larger force in the market. A couple of other smaller players are still confused on what to do, but their weak financial position will also force them to either merge themselves with a larger operator or shut-down operations in loss making circles & focus on select strong circles. All this consolidation or shut-downs are expected to benefit all the larger operators over the medium to long term, including RJIL. Even though rumours are currently flying that RJIL is likely to extend it's existing offer in slightly altered form beyond 31st March'17, I believe that the more RJIL delays charging it's customers for service, the more damage it is causing to it's image as well as finances. It is quite obvious that RJIL is currently pushing for certain 'Records' in terms of customer enrollments and Network Usage statistics, etc. At the same time it is trying to cause maximum damage to competition. RJIL is able to do all this only because of it's Cash-rich parent's backing. But Regulatory & Financial sense will ultimately prevail and hopefully we should see Fair competition soon.

Reliance Jio's Happy New Year Offer - Bad news for everyone!!

Reliance Industries' Chairman made another 'Big' announcement yesterday about Reliance Jio. And it turned out to be just another new offer 'Happy New Year Offer', where Jio customers will get access to Free services till 31st March'2017. The main reason for extending Free services for another 3 months was said to be that the company was not very happy with the Quality of Service some of it's customers were getting,

primarily due to 2 factors: 1) The Voice Calling experience still wasn't as smooth as expected due to lack of cooperation from incumbent operators; 2) The Data speeds for some customers was below acceptable levels as nearly 20% of the subscribers were exploiting the existing FUP limits to the maximum.

To counter these, on one hand Reliance Jio will continue to work with regulator & other operators to enhance the Interconnect Capacities to bring down Call Failure rate to under 0.5% level; and on the other hand Reliance Jio is lowering the FUP limit to 1 GB per day under the new Happy New Year Offer. This offer opens for new enrollments from 4th of December'16 as TRAI had asked the company to end it's Welcome Offer after 90 days of introduction, i.e. on 3rd December'16. Subscribers of Welcome Offer will continue to enjoy benefits of the same till 31st December'16 and then will be migrated to Happy New Year Offer on 1st January'17. Hence from 1st January'17, every subscriber on the Jio network will have a FUP limit of 1 GB per day, which is expected to improve the quality of Data service for most users.

Why am I disappointed? : As a user of Jio's service, I am happy to be able to enjoy the Free service for 3 more months and in turn save couple of thousands more. But I was actually eagerly looking forward to the day when Jio's Free service ends and how it performs once people are supposed to start recharging/paying to continue using Jio's Data & Voice service. In the current situation where over 50 million subscribers continue to use/abuse Jio's Free service, it is quite an unfair comparison between experience of Jio's network with that of others'. Average Daily Data usage of a Jio user is well above 500 MB, whereas the average Monthly Data usage of a 3G/4G user of other operators is about 1 GB. Jio's user base has already crossed the 3G/4G user base of Airtel, making Jio the top Wireless Broadband service provider. That means the Data Volume on Jio's network will be in the range of about 20 to 30 times the Volume on networks of the other incumbent operators. In such circumstance, the Quality of Data service is bound to drop especially in high density regions.

The other reason for feeling bad is that this extension of Free Service period will mean even more pain in an already troubled Telecom sector. Only the Top-3 operators (Airtel, Vodafone & Idea) were making some kind of decent Cash Profit before the Jio Tsunami hit the sector about 3 or 4 months ago. All the other smaller operators were already struggling to cover their Operating Costs with their Revenues, with that situation expected to worsen much much more during the 6 months period from October'16 to March'17. In fact we could see a couple of operators to just Shut shop (either partially or fully) due to Liquidity issues as Banks will also be reluctant to fund them more, without the promoters willing to infuse more money in the business. All these existing operators (including PSUs BSNL & MTNL) are struggling to retain a substantial portion of their customer usage, especially the ones with a 4G smartphones. With over 50 million users already having shifted their Data as well as Voice usage (either partially or fully) to Jio, all the existing operators are bound to feel substantial pain in revenue momentum. In my earlier posts, I had mentioned that I am expecting the Top-3 operators to post a drop of about 10-15% in their Revenues in December'16 quarter compared to June'16 quarter numbers. Now the March'17 quarter could prove to be even more painful with the drop extending to about 15 to 20% of Revenues quite easily. Such large drops in Revenues at a time when these operators are investing in CAPEX for expanding 3G/4G capacities could mean that even these Top-3 operators could post Cash Losses or very negligible Cash Profits in either December'16 or March'17 quarter. This is also not good news for shareholders of Reliance Industries as the company will need to Capitalise another quarter's Operating Costs for Jio, which could be around $ 1 Billion, leading to higher Interest burden and Depreciation Costs once Jio's revenues & costs start being consolidated with Reliance Industries' Quarterly numbers. Ofcourse this additional $ 1 Billion is quite small to the size of the total CAPEX undertaken by the company for Jio in total. But even shareholders of Reliance Industries must be very eager to see how Jio's financial performance progresses, and this extension will mean a further delay for the same.

I am expecting all these existing operators to approach TRAI / DoT to appeal that Reliance Jio cannot be allowed to offer Free Service for another 3 months. Even I am not sure if Reliance Jio's new offer will get permission from the regulator or not. We should know about it in the next couple of weeks for sure. Let's wait & watch.

Telecom AGR Analysis - Q2-FY'17 numbers are the start of a new story.

The Q2 of FY'17, i.e. the period July to September'2016, will be the start of a new Telecom story. And all of us know why, isn't it? Yes. It is the start of Reliance Jio becoming available to a much wider population from sometime around the end of August'16, when Jio Preview Offer was opened to a huge list of 4G smartphones. Soon after that, on 5th September, Jio was made open to the public with it's Welcome Offer, which offered everything from Data, Voice calls, SMS & access to Jio Apps, FREE till 31st December'16. This lead to a mad rush to acquire a Jio Sim by millions of 4G Smartphone users. This migration of usage (atleast temporarily) from one of the existing operators to Jio by a few million users, starting from the month of September, was definitely going to affect the Revenues of all existing operators. Ofcourse, the impact was expected to be small in Q2 as Jio started activating Sim cards at a rapid pace only in the last month of the quarter. In one of my previous posts I had mentioned that I was expecting a 3 to 5% erosion of Industry's Gross Revenues in Q2 and a bigger hit of 10 to 15% in Q3. Now that we have Adjusted Gross Revenue (AGR) numbers for Q2-FY'17, let's see how the industry has fared.

For my analysis, I have been keeping a track of AGR numbers for all 22 circles of 9 Telecom operators: Airtel, Vodafone, Idea, Tata, Aircel, BSNL/MTNL, RCom, Telenor & Jio. As of now Jio's numbers are close to Zero (insignificant). The other 8 operators comprise of nearly 98% of the Industry's Total Revenues. The Total AGR for these 9 operators across all 22 circles was Rs.40,097 crores in Q1-FY'17, which has dropped by 3.3% to Rs.38,764 crores in Q2-FY'17. This was very much on expected lines. It is interesting to see how the different operators and circles

have performed Q-o-Q. After collating all the numbers, I was slightly surprised to note that impact of Jio's Welcome Offer is the least in the Metro Circles and the maximum in the C-Category Circles.[The AGR number for Metro Circles in March'16 quarter looks unusually taller mainly because of abnormal numbers from MTNL during that quarter.] On a Q-o-Q comparison, AGR for Metro Circles is down by just 1.1%, for A-Category Circles it is down by 2.3%, for B-Category Circles it is down by 3.9% and for C-Category Circles it is down by a whopping 8.2%. What does this indicate? Does this mean that Jio did not attract a decent subscriber base in Metro & A-Category Circles? I certainly don't think that is the case. The thing is that Metro & A-Category circles were expected to be the early adopters of 4G service. Hence the incumbent operators were more focused on protecting their Revenues & Customer base in these circles from migrating to Jio. Hence the Top-3 operators, i.e. Airtel, Vodafone & Idea, invested substantial Capital to aggressively expand their 4G/3G coverage in these circles and also in Urban areas of B & C-Category Circles. All the existing operators also made rapid changes to their 3G/4G Data packs and also came out with more & more attractive Special Offers for their Data consumers, in an attempt to keep a user tied to their network. And the incumbent operators certainly seem to have done an excellent job.

The other factor that might have helped here is the higher proportion of postpaid user base in Metro & A-Category circles. Most of the Postpaid users did not migrate to Jio during this Welcome Offer period as they wanted to check Jio's quality of service before jumping ship. At the same time the incumbent operators offered these postpaid users more & more Voice minutes or Data Limits within their existing plans, making it more attractive to remain with a proven operator. In case of Pre-paid users, there is no monthly commitment and hence they can easily alter their Recharge/STV choices & frequencies depending on requirement/offers. Another point being availability of Jio's 4G network across 18,000 cities & towns and over 2 lakh villages, spread across all 22 circles. On the other hand, only Airtel, Vodafone & Idea had their 4G networks operational, that too in select cities & towns, possibly more focused on areas where they knew there is a higher proportion of 4G Smartphone presence. The period between September'16 to June'17 could see the maximum pace of rollout of 4G sites by the Top-3 operators. They will also rapidly deploy the recently acquired 4G-capable spectrum in several new circles in the coming months, in an attempt to try & bridge the huge gap between Jio's 4G coverage and that of their own.

Operatorwise Categorywise Performance: It is even more interesting to see how different operators have fared in different categories. In

the Metro Category, Airtel surprisingly managed to post a 1.2% growth in AGR. Metro is one of the only 2 Category of Circles where Airtel does not hold the No.1 Rank, but it has now significantly closed the gap to Vodafone. Airtel could possibly wrest the No.1 Rank here in Q3-FY'17. MTNL is the only other operator to report Q-o-Q growth, but it's quarterly numbers recently have been quite volatile. All other operators have reported a Q-o-Q drop with RCom being the worst with 9% erosion in AGR. In Category-A Circles, BSNL was the only one to report growth with 1.7% Q-o-Q increase in AGR, but here again it can be dismissed to quarterly volatility. Amongst the other operators, the best performer surprisingly was Tata Tele with just 0.2% drop. It's 3G operations in most of the Category-A circles seems to have managed to keep it's customers tied to it's network. Idea was a big loser from the Top-3 with nearly 5% erosion in AGR. The worst performers were Telenor & RCom with 21% and 14% Q-o-Q drops in AGR.

Category-B & C Circles are where each of the Top-3 operators too have taken a considerable hit. BSNL is again the best performer in both these Categories, with 10.2% Growth in Category-B and a small drop of 2.2% in Category-C Circles. Category-B is the other segment where Airtel was trailing someone in AGR market share. With the No.1 player Idea reporting a bigger drop in AGR this quarter, Airtel is now almost on-par with it. The worst performers in Category-B Circles were again Telenor & RCom with 13% & 10% drops respectively. The same in Category-C Circles were RCom, Telenor & Idea with 32%, 16% & 14% drops respectively. Airtel which is the dominant player in the Category-C Circles with nearly 48% market share, also experienced a substantial 8.8% drop in AGR during Q2-FY'17. This is also the only Category where Airtel has reported a small drop in AGR market share by 30 bps. In all the other 3 categories, Airtel has either increased it's market share or managed to increase it with a clear outperformance.

On an overall basis, Telenor has taken the biggest percentage hit with near 17% Q-o-Q drop in AGR, followed by RCom with near 13% drop. Aircel's numbers are not exactly comparable here as I had to make some adjustments to reported numbers as it included the revenues from Spectrum trading in 7 circles. Even though BSNL/MTNL combine reported a 4.9% Q-o-Q increase in AGR, the Total AGR for the company was lower than each of the 5 quarters prior to Q1-FY'17. Hence we need to take BSNL/MTNL's Q2 numbers with a pinch of salt. Tata Tele was the surprise package here as it has managed to face the Jio storm pretty well in Q2-FY'17 with a small 3.4% Q-o-Q drop in AGR. This is despite the fact that Tata Tele has Zero 4G presence and 3G operations in only 8 circles. The credit for the good performance clearly goes to Tata Tele's operations in Category-B circles, which contributes nearly 48% to the company's Total AGR, where it reported a negligible 0.2% drop. Amongst the Top-3 operators, Idea Cellular is the one to take a significant hit with it's AGR dropping by nearly 6.2% Q-o-Q. The 2 most important circles for Idea Cellular were Rest of Maharashtra and Madhya Pradesh, which together contribute around 28% of the company's Total AGR. Idea Cellular's AGR in these 2 crucial circles reported a Q-o-Q drop of 8.5% during Q2-FY'17. The No.1 & No.2 operators, Airtel & Vodafone, proved to be the most resilient to Jio's onslaught in Q2-FY'17 with a small 2.8% Q-o-Q drop in AGR.

Now all eyes will be on 3 things: 1) How does Jio's QoS (Quality of Service) progress during the Welcome Offer Period. 2) Whether Jio announces new tariff plans or Offers in December. 3) How well do Airtel, Vodafone & Idea make use of their existing or recently acquired spectrum resources in the coming 6 months in trying to combat Jio as well as each other. Jio was facing substantial Call-connectivity issues with other operators throughout September & October. But over the recent couple of weeks, the issues seem to have been considerably resolved as most users are reporting Call-connectivity within just 1 attempt. Now Jio needs to focus on improving the experience with Data service, which had taken a beating due to the huge traffic being generated from the millions of customers it added during the last 2-odd months. Some reports suggest that Jio is rolling out LTE-Advanced (Carrier Aggregation) technology on a PAN-India basis, which should help the operator in better utilising it's Spectrum resources and improve the overall Data through-puts for most users. Let's wait & watch on how successful the operator is in completing this task well before the Welcome Offer period ends. Reliance Jio can expect to see a major portion of it's Welcome Offer user base to upgrade to being Paid-users only if the operator is able to offer decent QoS both on Voice Calls as well as Data service atleast for the last 2 weeks of the Welcome Offer period.

All-Out War for Wireless Data traffic now begins!!

As per Quarterly Reports presented by Bharti Airtel & Idea Cellular post June'16 Result announcements, the No. 1 & No. 3 operator were carrying approximately 60 million GBs and 35 million GBs respectively on a monthly basis. At an average realisation rate of about Rs.220 per GB, it translated into a monthly revenue of about Rs.1300-1350 crores for Bharti Airtel and about Rs.750-800 crores for Idea Cellular.

Reliance Jio entered the scene in the second half of the June quarter, when it started issuing a Jio Sim with 90-days Preview Offer alongwith all LYF handsets. By June-end, Jio had activated an additional about 1 million Sim cards under this offer, taking it's active user base to 1.5 million. The average usage of these 1.5 million users was said to be about 1 GB per day!! That means Reliance Jio's network must have carried approximately 35 to 45 million GBs of Data during the month of June'16, making it the 2nd largest Wireless Data carrier in India at that point of time. And this was just the start. Reliance Jio is expected to have added another 1 million users in the month of July'16 under the LYF-bundled Preview Offer. It's Data traffic must have been in the region of 70 to 80 million GBs for July'16, making it the No. 1 Wireless Data operator in India in terms of Traffic alone. Theoretically, Jio wasn't making any money from this traffic as it was all Free for the buyers of LYF handsets. In the 2nd fortnight of August'16, Reliance Jio opened the floodgates by allowing other 4G handset owners to also receive a Jio Sim with the 90-days Preview Offer.

By the end of August'16, the active user base on Jio's network is expected to have touched close to 5 million with a monthly Data Traffic in excess of 150 million GBs, more than double that of Airtel's expected Data traffic number for the month. It is highly unlikely that existing operators like Bharti Airtel & Idea Cellular or anyone else, must have seen any significant growth in monthly Data Volumes during the current quarter, i.e. Sept'16 quarter. A small portion of the heavy Data users had already bought the LYF handset and were enjoying the Unlimited Data benefits on Jio network. The massive rush for Jio Sims, which started in the last week of August, has continued in September after the Chairman of RIL announced full scale launch from 5th September with Welcome Offer where all users will be eligible to get 4GB per day of 4G Data & Unlimited Voice Calls & SMS till 31st December'16. Reliance Jio's user base is expected to touch around 15 million by the end of Sept'16 with a monthly Data Volume of around 250 million GBs

How is the Competition reacting to Reliance Jio's aggressive Usage growth?

With Reliance Jio zooming past all the existing operators in terms of Network Traffic numbers, it was just obvious that all the existing operators will feel varying degrees of pain. At least 10 to 20% of Traffic on Jio's network must have directly come from competitors' traffic numbers (remaining 80-90% volume was either Splurge usage or replacing Broadband/Cablenet traffic, as everything was Free on Jio's network). Before Jio came in, monthly Wireless Data volume on 2G/3G/4G networks must have been in the region of 150 million GBs and it was growing at a pace of 3 to 5% M-o-M. That means incremental growth in Volume of about 5 to 10 million GBs. That means Jio must have gulped down not just the incremental Volume, but a small portion of existing volume number too, by now. The existing operators must have detected exhaustion of growth in Data volumes in July itself. Hence their first step towards protecting volumes came around end of July in terms of increasing Data limits on packs of denomination higher than Rs.300 or 350. Where they were earlier offering 2 GB Data limit, it was revised to 3 GB and in the regular 3 GB Data pack, the limit was raised to 5 GB, and then 10 GB 3G/4G Data pack was now priced just under Rs.1000/-, which was earlier costing anywhere between Rs.1300 to 1800. 

This step might have helped retain Data volumes for some time. But after Jio unleashed the Sim card eligibility to almost all 4G handset owners in the last week of August, leading players like Bharti Airtel & Idea Cellular, who both had reasonably large 4G network in place, had to take the second step. Both of them announced something like the Mega Saver Pack costing around Rs.1498/- by the end of August, which came with upfront 1 GB Data limit & gave the subscriber the eligibility to get 1 GB/ 2 GB/ 5 GB recharges at highly discounted rates of about Rs.51/ 101 / 251, any number of times over a 12 months period. Seems like this Mega Saver pack wasn't helping these operators in arresting fall in Data Volumes much, as people across all major cities & towns continued thronging Reliance Digital stores to grab a Jio Sim at the earliest. Both Airtel & Idea further sweetened the Mega Saver pack by hiking the upfront Data limit to 6 GB, just 2 weeks after announcing the packs around August-end. Seems like this too wasn't helping the operators much as today Bharti Airtel is said to have announced another pack priced at Rs.1495, which will give the customer 30 GB of 4G Data with 90 days validity, bringing the effective Data rate to just Rs.50 per GB. This pack is said to be available in Delhi from today & will be rolled out to other circles over the next few days. I won't be surprised if Idea & Vodafone too follow Airtel in announcing a similar pack in the coming few days.

My View: 

Reliance Jio's offer includes both Free Data & Free Calling and SMS till the end of this year. This is kind of a double-whammy for all existing operators as a major usage shift of existing mobile users to Jio's network will start pulling down the former's revenues. Hence the Top-3 operators have undertaken a 2-pronged strategy to counter this: 1st is to try & spoil Reliance Jio's name as much as possible as far as Voice calling is concerned. Reliance Jio has been crying foul since even before it's commercial launch that Airtel, Vodafone & Idea have been deliberately not giving enough Points of Interconnect to enable smooth transfer of Calls from Jio to their networks & vice-versa. This might have been one reason why Jio was forced to announce Commercial operations from 5th September, coupled with Welcome Offer of Free usage to it's subscribers till year end. After announcement of Commercial operations, Jio must have signed requisite Interconnect agreements with each operator & started paying IUC @ 14 paise per min for each outgoing call to other operator. At the same time, the other operators will have to provide enough Points of Interconnect in line with increase in Call traffic between them. It's been close to 3-weeks since Jio's commercial operations have started, but the Voice calling to other operators, especially the Top-3 ones, is still not anywhere near smooth. 

Reliance Jio has been desperately pushing each of the other operators for enabling more PoIs at the earliest. But the more they delay it, the more damage will be inflicted on Jio's brand image and better their chances of retaining their customers. But this can't go on for long & very soon we will see a substantial improvement in Voice Calling from Jio numbers to those of other operators. Jio will try to streamline all their Voice Calling operations well before the Welcome Offer period ends. If Jio's active customers do get a good Voice Calling experience for atleast the last 3 to 4 weeks during this Free period, then there is a higher probability of these customers getting converted into Paying customers from 1st January'17. And once the word spreads that Voice Calling is also now normal from Jio network, many people will start thinking of porting their primary mobile numbers too.

The 2nd part of the strategy adopted by existing operators is to try & offer higher Data limits for higher denomination packs. By doing this they are trying to maintain some minimum level of Average Monthly Revenues, even though the Data Volume might get a big boost. Look at the Mega Saver pack for example. If a customer does recharge with Rs.1498, he gets 6 GB 3G/4G Data upfront with 12 months validity. This ensures an ARPU of about Rs.125/month to the operator. Suppose this customer needs atleast 5 GB of Data per month, that means he will be consuming about 60 GB in a year. That means he will need to do a recharge of Rs.251 or 252 every month from the 2nd month onwards. That means the operator will receive a total revenue of about Rs.4200 to 4300 (1498 + 2770 approx.) from this customer over the year, translating into a monthly ARPU of around Rs.350/-, which is a decent number. The other pack that Bharti Airtel announced today, which offers 30 GB of 4G Data for 90 days at Rs.1495, is again aimed to ensure around Rs.500 per month in ARPU for the operator. This pack will most probably be a limited period offer as it is an attempt to retain High Usage customers from shifting their usage to Jio. 

But the big question is: How successful will all these moves be to ensure minimum loss of revenues for all these operators for Sept & Dec quarters? 

I think all these existing operators who have millions & millions of subscribers on their 2G/3G/4G networks, will not lose much of their Voice revenues, atleast during the Sept quarter, because of 2 reasons: 1) Jio is expected to enroll just about 15 million users by Sept-end, which is just about 1.5% of the total active subscriber base; 2) Voice Calling experience on Jio is still not smooth, though it is expected to improve in the next few weeks. The existing operators will certainly lose some portion of their Voice Revenues during December quarter as Jio's user base is expected to expand from 15 million to well over 50 million over the 3-months period. And the Voice Calling experience should be much better during most part of the December quarter. I am estimating a drop in Voice Revenues to the tune of 3 to 8% across all existing operators. The drop in Outgoing Calls volume could be larger than drop in Revenues, but all these operators are expected to be Net-receivers of IUC from Reliance Jio as Calls from Jio to their networks are expected to remain 5 to 10 times higher than calls in the reverse direction, atleast in the initial few quarters. Gradually this multiple could come down to about 2-3 times over the next 1 or 2 years.

Coming to Data Revenues, this is where the impact will be much bigger on all existing operators. As of June'16-end nearly 70% of the Total Wireless Data traffic & 95% of the incremental traffic was from 3G/4G customers. Bharti Airtel had about 36 million & Idea Cellular had about 27 million 3G/4G Data customers at the end of June quarter. That means the Total 3G/4G Data customers in India should be around 100 to 110 million by the end of June'16. Out of this number, nearly half of them are expected to have a 4G handset, making them a potential customer for Reliance Jio. Apart from that, nearly 8 to 10 million new Smartphones are sold in India every month and most of them now are expected to be 4G compatible phones. That means Reliance Jio's potential customers are growing in numbers at a rapid pace. By the end of December'16, the number of 4G handsets in India could be crossing the 100 million mark and there could potentially be a Reliance Jio Sim card in half of those. Since Reliance Jio is offering all it's services Free of charge till December-end, almost all the 4G handset owners would like to try their services. So it's a matter of how many enrollments Reliance Jio is able to handle over these 3 to 4 months. I am estimating that Reliance Jio could be able to activate anywhere between 10 to 15 million Sim cards every month, which should translate into a User base of between 50 to 60 million by end of December'16. Even if this turns out to be true, then Reliance Jio could possibly become the largest Wireless Broadband player in India (in terms of Subscribers too) even before the end of this year. This will certainly have a serious impact on the Data Volumes of all existing 3G/4G operators in the country.

The existing operators are already seeing a substantial portion of their 3G/4G customers shifting their usage to Reliance Jio and hence are being forced to offer increased Data limits to their customers in order to try & retain as many Data Consuming users as possible. This action will help them in somehow maintaining the overall Data volumes on their networks, but it will certainly pull down the Net realised rate per GB of Data. I am expecting the June-quarter average rate of about Rs.220 per GB to fall to around Rs.180-190 per GB for September-quarter and to a level of below Rs.150 per GB for December-quarter. That means the Average rate per GB is expected to fall by about 30-35% over these 2 quarters. Hence in order to maintain Data revenues at same level as June-quarter, these operators will need to ensure a Data volume growth of around 30-35% over these 2 quarters, which I think will be very difficult to manage on the face of Free Usage offer from Reliance Jio during this period under consideration.

But things could be a bit different from January onwards. The Top-3 operators, who are continuously expanding their 4G network coverage currently, could recover a part of the Data Traffic market share lost during the Sept & December quarters, as Reliance Jio users will also need to pay to use their services. I have already shared my opinion on the Tariff Plans announced by Reliance Jio earlier this month. Click here for that post. Those tariff plans are more suited only to certain categories of users, like the ones who talk a lot and those who live in urban areas & have regular access to Jionet WiFi services. Those plans are clearly not suited to those who were looking for pure 4G Data packs. Unless Reliance Jio tweaks those tariff plans or introduces new pure 4G-Data packs, it is bound to lose a substantial chunk of it's user base post 1st January'17. Reliance Jio will certainly consider the traffic flow on it's networks for a couple of weeks post 1st January'17 and can then easily introduce new Data packs to bring back the users who had stopped using their services due to lack of suitability.

All in all......this massive competition amongst the incumbents & Reliance Jio for increasing Wireless Data traffic is currently benefiting the Data customers tremendously. India's Wireless Data volumes could be hitting a record high during the Oct to Dec'16 quarter, which might remain a record even for another year or more. This is Bonanza period for Customers, but equally a painful period for Shareholders of all these Telecom companies. 'Survival of the Fittest' will be tested in this sector over the next few quarters.

Reliance Jio Tariffs - Clear focus on Revenues!!!

Reliance Jio's tariffs has become the hottest topic in the Indian media since the chairman of Reliance Industries announced the same at the company's AGM yesterday. While everyone is going ga-ga over how Revolutionary or Game-changing the tariffs are, there are people like me who are somewhat disappointed. While I was expecting Reliance Jio's tariffs to be focused on the Data user with Voice being offered as an additional VAS, the actual tariffs seem to be focused on Voice user with Data as a VAS. Yes, it is being highlighted everywhere that Reliance Jio will NOT be charging for Voice Calls being made to anywhere in India, not even on Roaming, that certainly Does Not mean that a customer with an active Sim card will be allowed to make any number of calls without Recharging with any of the 10 Plan options. In a way what Reliance Jio has done is that it has bundled Unlimited Voice calling in all it's Plans. The Plans are designed to include charges for both Voice & Data & SMS. Not just that....most of the 'supposedly Big' tariff announcements are just means to fool people into believing that they are being offered something out-of-this-world.

The 'Supposedly Big' annonucements are:

* Free Voice Calls to anywhere in India, even on National Roaming.

* Data at just Rs.50 per GB

* Free subscription to Jio Apps worth Rs.15,000 till December'2017

* Free unlimited 4G Night Usage

Now let's look at the real picture. The following image shows all the Jio's tariff plans announced by Reliance Industries via a Press Release:

Let's look at it point wise:

* Free Voice Calls to anywhere in India, even on National Roaming: Voice calls are Free only after a subscriber has paid for either of the 10 plans. For Example: Suppose a subscriber recharges for the smallest plan, i.e. Rs.19, which is valid for 1 day. He will get to make Unlimited Voice Calls only for that day. He won't be able to make any calls the next day, until he recharges again. That means Voice Calling is bundled in the Plan charges. It's an excellent deal for someone who loves talking a lot on the phone. Jio will certainly hope that most of the Voice Calls are made within the Jio network and for that to happen it will have to scale up the Subscriber base at a very rapid pace. For every call that is made to another network, Jio will have to bear the Interconnect Cost of 14 paise/min. To compensate for this, Jio will hope that it also receives an equal number of calls from other networks, especially after it has built a substantial user base. I don't think that will happen until other operators too start offering Free Unlimited Calling under some affordable plans. With the cheapest 28-days plan of Rs.149, Jio will earn a revenue of little over Rs.5 per day. Hence Jio can maintain Free Voice Calling only if the Average Calls per user per day to another Network remain under 25 minutes or so. As per information available, as of now the Average number of outgoing calls made per user per day is around 15 minutes. I think Jio subscribers will make lot more calls as it's free. Hence Jio certainly needs to not just ramp up it's subscriber base, but it also needs to ensure that subscribers use their Jio number as their Primary contact number. From a subscriber's point of view, it's a bonanza for anyone who currently spends over Rs.200 per month only on making Voice Calls. Rival operators too will tinker their Voice Call charges or their STVs to minimize loss of Voice traffic.

* Data at Rs.50 per GB: This rate is true only if we consider the WiFi Data limits, not for 4G Data limits. Even on the most expensive plan, which offers 4G Data of 75 GB for Rs.4999, the rate comes to about Rs.67 per GB. Majority of the population cannot afford anything more than the Rs.499 or Rs.999 Plan, where the Data rate comes at Rs.125 and Rs.100 per GB respectively. These rates are certainly not cheap. These plans will look attractive to only those who have regular access to JioNet's WiFi Hotspots as each of Jio's Plans (other than the Rs.149 plan) comes bundled with WiFi Data limits that are double of the respective 4G Data limits. Jio claims to have a million WiFi Hotspots active currently, but all of them are mainly in highly active Public places in Urban areas. People who frequently move in such areas will certainly find Jio's tariffs attractive. But it's a useless feature for people living in smaller towns or rural areas. And also for people who are dependent on Wireless Data service and consume substantial Data while at home and not at work. A major chunk of Data usage for most Indians happens while at home. All such people are not going to find these tariffs attractive, unless someone is highly lucky to be receiving a JioNet WiFi signal at their residence.

* Free subscription to Jio Apps worth Rs.15,000 till December'2017: This is One Big Joke!!! Take a closer look at the Tariff card shared above. It clearly says that Data used for Jio Apps, Video Calls and other content on the Internet will be debited from the Data allocation for the Plan. Then how does Jio Apps subscription become Free as a user will be charged for Data used for the same. And claiming it to be worth Rs.15,000 for the year is only the matters worse!! Amongst the Jio Apps, the main focus of most people is on JioCinema, JioTV and JioMusic. While Music streaming could consume about 2-3 MB per minute, the Video Apps consume about 15-20 MB per minute. That means a person can listen to about 300-400 minutes of Music per GB or watch 50-60 minutes of Video per GB. I seriously think that the usage of these Apps will collapse substantially from 1st January when Jio starts charging all it's users. Not many people will use these Apps on Jio's 4G network from 1st January. My earlier expectation was that Jio will offer the Apps bouquet for something like Rs.300 to 400 per month, which will also include the Data consumed by these Apps. But my expectations were probably just way too optimistic.

* Free unlimited 4G Night Usage: Look at the Night Usage timings in the above tariff card. A 3-hours window between 2 am to 5 am, when 99% of the population is fast asleep, is another big joke. Earlier I used to ridicule the 12 midnight to 6 am Night Usage timings set by the incumbent operators for some of then 3G/4G plans and was happy that atleast Tata Tele had set a more sensible timing of 11 pm to 7 am. But after looking at the timings set by Jio, even the incumbent operators start looking much much more lenient. Only a very very small percentage of Jio's subscriber base will be able to make good use of the Unlimited Night Usage feature. For all others, it's as good as non-existent feature.

Summary:

Reliance Jio is Open to all Indians from the 5th of September'2016. The Chairman has announced that All Usage of Jio network for all subscribers will be completely Free till 31st December'2016. This announcement will ensure that millions of Indians (especially the ones who already have a 4G handset) will try and grab a Jio Sim card at the earliest and hope for an early activation. The Chairman also said that the systems are being prepared to activate 1 million Sim cards per day. With a near about 118 days of Freebie period till the end of this calendar year, we could see anywhere between 20 million to 50 million Jio Sim cards being activated during this period. The 4G user experience, which was pretty good for most 'Test' users through June and July, was already seeing some bit of deterioration over the last couple of weeks, when Jio added atleast a couple of million 'Test' users to it's network. With the mad rush for Jio Sims expected to continue from next week under the 'Welcome' Offer, it will be interesting to see if Jio's network is able to handle the load and still offer a User experience which is atleast better than 3G network experience of rival operators.

During this 'Welcome' Offer period, we could see more follow-on announcement from Reliance Jio. I am hoping for some new Tariff Plans for people who are not interested much in Voice Calling, but only Data Usage, especially for people who consume over 10 GB of Data every month. Possibly specific Plans for JioFi devices. Unless something like this happens, I am expecting about 50% of Jio's users enrolled till 31st December'2016, to shun Jio and go back to their previous Sim cards from rival operators. I will certainly be one of them, unless Jio offers Data-specific plans with higher usage limits. 

I think Reliance Jio will get very popular amongst Corporate Users, who are generally Post-paid ones. Reliance Jio's Postpaid plans are certainly offering lot more than that being offered by Airtel or Vodafone or Idea currently, especially on Plan 499 and above. These operators will immediately tweak their Post paid plans to try and retain their Corporate Customers, who offer substantial ARPUs on a consistent basis. Any loss of Corporate customer base to Reliance Jio, will mean a bigger impact on their profitability.

From the company's point of view, it is positive thing that the focus is clearly on earning decent amount of Revenues from every subscriber. Even under the cheapest plan of Rs.149 with 28 days validity (for prepaid), Reliance Jio will earn a minimum of about Rs.160-165 per month from every subscriber. Assuming about 50% of it's overall subscriber base to opt for a higher plan, Reliance Jio could be looking at a monthly ARPU of around Rs.400/-. Even if Reliance Jio manages to retain a paying subscriber base of about 25 million from 1st January'2017 onwards, it could result in monthly revenues of around Rs.1000 crores to start with. I am expecting Reliance Jio to incur a monthly Operating Cost of about Rs.1000 crores just to keep the 4G network Live across the country. In addition there will be cost for License Fees, Spectrum charges, Interconnect Cost, Staff Cost, Marketing Expenditure, etc., which together should amount to about Rs.700 to 1000 crores a month. That means Reliance Jio needs to achieve a monthly Revenues of about Rs.2000 crores just to cover all it's Expenditures (excluding Interest). Depending on how well it is able to ramp up it's paying subscriber base from January'17 onwards and react to competition's moves, it could take anywhere between 6 to 12 months for Reliance Jio to reach a monthly Revenues of Rs.2000+ crores. 

Reliance Jio certainly cannot stop there as it has the Huge Debt burden to cater to as well. Thanks to a rich parent's backing, the Average Interest Rate for Debt raised by Reliance Jio is probably just about 7 to 8%. Still the Annual Interest Cost alone should be in the region of Rs.8000 to 10000 crores (including for Working Capital Loans), translating into an average monthly figure of about Rs.700 to 800 crores. That means Reliance Jio will need to take it's Monthly Revenues closer to Rs.3000 crores to achieve Cash Profit. I will be highly surprised if Reliance Jio achieves that target before the end of year 2018, especially with the current set of tariff plans announced. Reliance Jio will certainly have to make serious changes to it's tariff structure sometime around the end of year 2017 to keep the subscriber addition momentum going.

Thanks to the Freebie period under the Welcome Offer announced by Reliance Jio till 31st December'2016, I am expecting the entire Telecom industry to take a 3 to 5% hit in Gross Revenues in September'16 quarter and about 10-15% hit for December'16 quarter. The Oct-Dec'16 quarter will be quite a pain period for the entire Industry. But things should start looking better from the Jan-Mar'17 quarter and we can expect to see some good competition. The worst hit could obviously be the smaller operators & it will be interesting to see how long they survive and what steps they take. Despite the tariffs announced by Reliance Jio being disappointing for a small section of users, it will be positive for the overall Subscriber community, primarily via increased competition.