Three-year-old Jio is now making $2 billion in 3 months ⁠— and it is weeding out the low-spenders and making data addicts pay more

  • Mukesh Ambani’s telecom venture, which was known for its freebies, is now looking to milk its subscribers.

  • After recent tariff hikes, the company’s average revenue per user has improved to ₹128.

  • Marginal users who were using Jio only for dirt-cheap voice calls are leaving the network, CFO Alok Agarwal said.

  • The liability due to Supreme Court’s verdict on unpaid licence fees and spectrum usage charges is just ₹177 crore for Jio.

  • Whereas the same liability is so huge for Vodafone-Idea, it is feared to be the death knell for Jio’s rival owned by the Birlas.
Reliance Jio made a name for itself with dirt-cheap offerings that debased the entire telecom sector in India. As weaker rivals fell by the wayside, Mukesh Ambani’s telecom venture is all set to reap the benefits.


Jio’s revenue increased by 28.2% to ₹16,517 crore ($2.3 billion) compared to the same quarter last year and its margins, too, improved from 18.3% to 22% in the third quarter ending December. The average revenue per user has risen 7% to ₹128 in a year.


This is largely due to the tariff hikes that the company rolled out in the last quarter. It also started charging Jio users to receive calls from other networks. Unsurprisingly, 22.3 million stopped using Jio in the last three months.


However, Jio is not too worried. “As we increased tariff, and started charging for inter-connection, a lot of marginal users who used Jio mostly for voice calls have moved out of the network," CFO Agarwal said. Instead, the company is focusing on milking the high-spending data addicts for more profit.


Here’s what gives Jio an upper hand over its users


Mukesh Ambani’s Reliance Jio was the last to enter India’s telecom market dominated by Sunil Bharti Mittal’s Airtel and Vodafone-Idea, which is now owned by Kumar Mangalam Birla. Three years after Jio’s debut, it is probably the strongest of the lot.


The recent Supreme Court verdict that sprang an unexpected liability for unpaid licence fees and spectrum usage charges hit every player⁠— but the younger the company was, the lesser the impact. That came as a boon for Jio and a bane for Vodafone-Idea, the weakest of the lot.


Mukesh Ambani’s telecom venture too had to recognize a liability of ₹177 crore but the much-older Vodafone-Idea, saddled with a lot of older debt, has to cough up ₹53,039 crore. The Supreme Court has refused to review its order and investors are running for cover.


The upside for Jio, as well as its rival Airtel, is that if Vodafone-Idea were to fold under pressure from shrinking business and rising dues, the users will be divided between Jio and Airtel at no additional cost.


This led to a sharp 6% rally in the share price of Airtel, and 3% rally in the stock of RIL, which is the parent company for Jio.


There is one downside though...


In the words of Chairman Ambani, Jio was targeting a total of 500 million customers which it was supposed to achieve this year. The trends of the last two quarters show a slowdown in subscriber addition as tariffs went up.


Jio already has 370 million users, and without Vodafone-Idea, the market will be down to a duopoly between Reliance and Airtel.


Even if the Mittal and Ambani were to continue their hustle in telecom, Jio may choose to bleed some more because it can afford to. “Jio did increase telecom tariffs but even after the hikes it was lower than that of the incumbents. Interestingly, some of the new tariff plans have effective tariffs which are lower than the prevailing ones at an effective 16% discount to the recent hike,” said a recent report by JP Morgan.


Even Ambani has his limitations


In the process of driving out competition in telecom, RIL has piled up a debt of over ₹2 lakh crore and Ambani knows that’s a lot.


The conglomerate has lined up a plan to monetise some of its assets to repay debt. That includes the sale of telecom towers via an investment trust to Canada-based Brookfield Infrastructure Partners. The announcement was first made in July last year. “Brookfield and affiliates will invest ₹ 25,215 crore in Tower InvIT. At closing of the transaction expected shortly, Tower InvIT will own 100% of the issued and paid up equity share capital of RJIPL,” the company said in the press release.


These deals, along with the proposed stake sale in the energy business to Saudi Arabia’s Aramco will give Jio the much-needed cash to dominate the telecom market.

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