RELIANCE JIO - TIME FOR OTHER TELCOs TO RING '911'?
By Ruma Dubey
Bharti Airtel was having a good run on the bourses when all of a sudden, like a bumpy speed breaker, there came the report and downgrade of Credit Suisse. Bang! The stock fell and slipped; and it closed amongst the top losers of the day on the BSE.
Credit Suisse put out a report on the stock, downgrading the stock to ‘underperform’ from ‘neutral’. It also reduced the target price of the stock by Rs.10, from Rs.275 to Rs.265. In the report, Credit Suisse has stated that competition from Reliance’s Jio, given the large spectrum holding and ongoing large-scale investments, could pose some serious competition for Bharti. RJio, at the time of launch itself can add 60-80% of Bharti’s current capacity. That’s it! Since then the stock price has tumbled.
One report, from one FII can cause so much damage? As per the data put out by Thomson Reuters, the stock currently has 32 "buys", 9 "holds" and 2 "sell" ratings. So what about the fact that there are majority ‘buy’ calls?
It seems more like Credit Suisse touched a raw nerve; it is probably a fear which lurked all the time, around the periphery of Bharti Airtel but somehow no one really wanted to deal with it. And with Credit Suisse spelling it out like it, there is worry, renewed worry that its report and downgrade could prompt others to do the same.
Apart from realizing the fact that FIIs have a vice like grip on our markets – what they sing is the tune to which our markets dance; another truth which comes forth is that we are going to see the emergence of a new telecom leader in India – RelianceJio.
Mukesh Ambani has always done everything king style, huge, larger than life. His foray into Indian telecom is not small – its huge to put it lightly. With an investment spend of around $7.5 billion, apart from a 4G wireless service, Reliance Jio will provide broadband internet services in 900 cities and towns using optical fibre for which it has finalised agreements with partners required for the roll-out. Ambani also plans to make Reliance a TV provider by building a superfast fiber-optic network stretching into homes in urban areas and it has already started laying down underground fiber-optic cables in parts of India that will connect cell towers to the core network.
And Rjio is not looking at doing things in a dull staid manner, rolling out things just to get it over and done with. It is going to do all kingsize – the 4G roll out, apart from high internet speed, promises advanced voice calling service using voice over LTE (VoLTE) technology. This roll out is expected to be the biggest outside Japan and USA. 4G could help connect entire India as internet can enter every house in all parts of India through a mobile device, through broad band services. Currently only Bharti provides 4G but it is restricted to only data, no voice telephony is allowed.
RJio has launched free wi-fi spots in eight locations at Ahmedabad and nine locations at Baroda and Surat. The company recently won spectrum in 1800 Mhz, widely known as 2G spectrum in 14 service area. The company is working on rolling out the 4G services at the earliest and is planning to launch its own branded 4G handsets. For this, it has roped in ex-Blackberry India chief, Sunil Dutt. The target of RJio is to launch its service in this year and ensure his network reaches 50% of rural India by 2015 – that was the rule laid out when the spectrum license was acquired.
There was a time when a wired landline was the only way to talk. Then came wireless communication or the revolutionary mobile telephony. 2G ushered in basic data and SMS services. A decade after that, 3G evolved and data access was at faster speeds with innovative applications. But when Apple launched its iPhone and Google its Android, the world changed forever. Today, we are at an intersection where internet technology has converged with mobile technology. And this convergence has shrunk the world, flattened it. This mass adoption of connected digital technologies and applications by consumers, enterprises and Governments is the revolutionary movement of digitization, which has completely changed the face of the telecom sector.
Chetan Sharma Consulting studied the revenue growth patterns for 65 leading operators in 30 major global markets to understand when the revenue in certain segments rise, stagnate and fall. In majority of the cases it was learnt that once subscriber penetration approaches 70-90% band in a given segment, net revenue peak, then stagnates and then starts declining. In this report, Sharma (2012) has stated that the revenue curve for voice is already on the decline in major developed countries like Japan, US and Western Europe. The messaging revenue curve is on the decline in Philippines, Netherlands, Taiwan, Spain and Italy and has approached saturation in UK, France and USA. In emerging nations, both voices as well as messaging revenue curve are on the growth phase. The third revenue curve of access or data is on the rise all around the world though margins are under pressure to keep up with the growing costs. Sharma (2012) talks about the 4th wave – a basket of some more innovative products, most of which are yet to be developed but sure to take the sector by storm. And he says that unless telecom companies are ready with the right strategy to tackle this 4th wave, their revenues could decline precipitously. He has also warned that unless telecom companies become enablers and digital lifestyle service providers and not merely provide access, they will become like utility companies – large revenues but margins shrinking from 30-40% to 8-12%.
The Indian telecom sector is at the cusp of major change. We are evolving from voice to data and the future will be convergence, which is what Rjio is attempting to take us. There is no doubt that Rjio will shake up the sector and rightly so, unless Bharti moves faster, it could hit a bump.