Jio Telecom’s legacy and synergies give it a leg up in cost management
- Airtel, Vodafone saw a sharp rise in dealer commissions but Jio could stem it as
Reliance Retailis its dealer.
- Jio’s customer servicing costs are also much lower than that of its peers.
- Its tower rentals are also much lower as it previously owned some of its towers it now rents.
“About 50% of Reliance Jio's rental costs were paid to Summit Digitel at a rental of ₹23,000 per month per site. For the remaining sites, Reliance Jio paid monthly rentals of ₹32,000 per month per site — which is 27-32% lower than the site rentals being paid by Bharti Airtel and
In the last one year, its repair and maintenance costs have also risen sharply by 34% — but since it’s a relatively new network, it is 40% lower than that of its peers.
The sister act
This is not the only synergy benefit Jio enjoys. One of its most prominent dealers is Reliance Retail, and while its peers like Bharti Airtel and Vodafone have seen a sharp rise in dealer commissions, Jio has been able to stem this growth.
“This comes as a surprise in an environment where its peers are witnessing a sharp rise of 43-112% in their dealer commissions. Jio's dealer commissions at 3.1% of sales are slightly below Bharti Airtel which is at 3.8%, but much lower than Vodafone Idea which is at 6.7%,” says a recent Jefferies report.
The commissions that Jio paid to Reliance Jio's commissions paid to RRL at ₹2,800 crore were up 8% YoY, much below its revenue growth of 18% YoY – indicating that it has been able to grow revenues without paying out heftier commissions.
Its customer servicing expenses – at 0.2% of revenues – are also lower than its peers. Bharti Airtel’s expenses are 0.6% of its revenues and that of Vodafone Idea is much higher at 1.2%.
Larger capex, faster 5G rollouts
The cost profile of Jio is, however, set to change soon due to many factors, says the Jefferies report which has analysed its annual report for granular data. Its network operating cost rose 14% YoY, driven by a 37% rise in other network costs – mainly due to fiber usage.
“We note that the gap between revenues of Tower InViT and other network costs has expanded further, suggesting that fiber usage costs may continue to rise faster in the future,” the report adds.
AdvertisementThe company is now focused on ramping up 5G as it intends to roll out the new technology pan India by end of the year. As an effect of the expansion, its capex will rise sharply in FY24 and could lead to a negative free cash flow in the current financial year, Jefferies estimates.
Its net liabilities at ₹1,00,100 crore nearly doubled YoY due to higher spectrum spends, yet net gearing remains comfortable at 2.7 times the earnings before interest, tax, depreciation and amortisation.
It’s also scaling up its home broadband, and looking to accelerate transition of 2G subscribers to 4G — a premiumisation trend that’s currently expected to benefit Bharti Airtel the most. But a foot into the premium market will help Jio cut down possible revenue market share that might end up the kitty of its largest rival.
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