The economics behind Reliance Jio’s operations
- In the last one year, Reliance
Jio’s dealer commissions bill went up by a massive 87%, as per a Jeffries report.
- The commissions can only grow in the coming years as
Jio Fiberplans to increase its customer base from six million to 20 million.
- Even as its network costs also increased, in terms of tower rentals and repair costs, Jio’s costs are much lower than that of its peers.
AdvertisementSeven years after launching its services and three years after it launched its premium Jio Fibre services, Reliance Jio has opened its purse strings to its dealers and sales channels.
In the last one year, according to a Jeffries report, its dealer commissions bill went up by a massive 87%, and this momentum is likely to continue for the next year too.
“This was possibly due to continued scale-up of home-broadband and rise in commission intensity. Jio's dealer commissions at 3.4% of sales are now in line with that of peers,” the report said.
However, its biggest dealer is Reliance Retail with over 12,000 stores across India. The commissions that the retailer earned is to the tune of ₹2,580 crore in FY22. Its overall sales and distribution expenses declined 6% despite a 34% rise in gross subscriber additions during FY22, annually.
However, the commissions and channel expenses might grow as it’s hoping for a massive growth in these connections.
Jio Fiber has a little over six million customers and has set a target to grow it to 20 million. But these commissions increase will not change the carefully curated economics of Jio’s operations even as its capex is all set to increase and free-cash flows are affected, after it bought fresh 5G spectrum.
Tower costs, rentals lower
The network costs of Jio too went up by 13% year on year, driven by fiber usage charges and power and fuel costs. Its revenues grew at a sharper pace than these costs.
“Given the rising gap in the revenues booked by the fiber company and costs recognised by Reliance Jio Infocomm, these costs are likely to grow at a rapid pace in FY23 as well,” Jeffries said.
In terms of most other costs, Jio runs a tight operation as compared to its peers. According to a Jefferies report, Reliance Jio’s average rent cost per tower is 30-40% lower than its rivals.
Even repairs and maintenance costs of these towers is half of what Airtel and Vodafone Idea pay, and the report says this is because of the newer network technologies used by Jio.
In the year under review, the fuel costs of Jio’s sites rose by 14%. “This is largely in line with that for Bharti Airtel and Vodafone Idea. Repair and maintenance costs grew 57% year on year. Even after this rise, Jio's repair and maintenance costs per site remained 50% lower than peers, mainly due to a much newer network,” the report said.
This is one part of the economics of Jio’s strategy that allows it to remain the most competitive player in the market, in spite of its recent 5G spectrum purchase bill that was twice what Airtel paid for.
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