As the financial year 2014-15 comes to a close, Reliance Jio Infocomm Limited’s (RJIL) 4G services are yet to hit the market. The industry has lost count of the number of times the company has missed its deadlines, depriving the user community  of the eagerly awaited service launch. Although the industry has accepted the initial delays, given that Mukesh Ambani is known to bring a degree of dynamism into most markets that his group enters, there is now a general sentiment of impatience. While consumers have high expectations from RJIL, in view of the market disruption and transformation caused by Mukesh Ambani-led Reliance Infocomm (now Reliance Communications) in 2003, industry analysts are expressing reservations about the real impact of RJIL’s entry into the market.

RJIL has spent the past year, like the three years preceding it, in strengthening its infrastructure muscle, bringing in more investments, devising strategies, signing partnerships, and acquiring spectrum. However, it has failed to convert this into a commercial or mainstream service launch.

Having witnessed the pace of network roll-out, as well as RJIL’s spectrum acquisition strategy in the past two auctions, the industry is trying to decode the company’s plan. Analysts have long believed that a full-fledged (voice plus data) launch by company would be crucial to justifying the huge investments that it is undertaking, which are believed to be around $1 billion per quarter. Data alone may prove to be insufficient to bring about a revenue growth that matches the capex, therefore making voice an integral part of the business strategy. However, the company remains focused on developing an integrated ecosystem for 4G services, which will make it interesting to see how the company utilises its spectrum holdings across different bands. A look at RJIL’s strengths, strategies and challenges…

Key strengths

In the past three to four years, RJIL has managed to build up significant capacity. It has a fairly large and geographically well-spread network. According to reports from Credit Suisse (between August and September 2014), RJIL had completed the installation of over 32,000 long term evolution (LTE) base stations across the country, with the pace of roll-outs reaching about 7,000 installations per month. Further, over the last couple of years, RJIL has completed the roll-out of 100,000 route km of optic fibre cable. More than 85 per cent of this is intra-city fibre. Furthermore, RJIL uses cables with 288 fibres mostly (in some cases 96 fibres) while the normal cables used by the industry have 12-24 fibre threads. In addition, RJIL has already built five data centres.

On the operations side, RJIL recently launched a mobile messaging app called Jio Chat, available for download on Android and iOS devices. The app offers instant messaging, voice and video calling, one-to-one and group chats, conference calling, stickers and feature updates, and information on  users’ favourite brands. Some of the other digital services RJIL is planning to launch are Jio Beats (music streaming service), Jio Play (live TV and catch-up TV service), Jio On-demand (video on demand service), Jio News (online newspaper service), Jio Mags (online magazine service) and Jio Friends (friends locator app). The company is planning to offer fibre-to-the-home broadband connections, termed as FIP Alpha, with a speed of 100 Mbps and usage limit of 100 GB.

In January 2015, RJIL tied up with the West Bengal government to introduce a 4G-enabled free Wi-Fi service across key pockets in Kolkata over the next few months. The company is also reported to have brought its LTE services to the Wankhede Stadium in Mumbai, to cash in on the popularity of the IPL.

Spectrum surplus

One asset that the company has no dearth of is spectrum. Taking into account the spectrum that RJIL acquired recently, it has pan-Indian spectrum in the 2300 MHz band, spectrum in 10 circles in the 800 MHz band and spectrum in 18 circles in the 1800 MHz band (including all metros). These spectrum holdings provide RJIL with an opportunity to address coverage and capacity issues in a major way. Pan-Indian spectrum in the 2300 MHz band provides the company excellent capacity, which means that it can offer what are probably the highest data speeds in the industry for TDD-LTE. Moreover, networks in the 1800 MHz band have reasonable coverage, which may not be as good as that provided by those in the 900 MHz band, but are better than networks operating in the 2300 MHz band. Further, spectrum in the 1800 MHz band is technology-neutral and can be used for delivering both 2G and 4G services.

RJIL has chosen to refrain from acquiring spectrum in the 900 MHz band, a move that may have implications in the longer term. However, in the near to medium term, RJIL is expected to focus on urban markets, which can be adequately catered to by networks operating in the 1800 MHz spectrum band. The decision to avoid acquiring spectrum in the 900 MHz band has also resulted in RJIL saving itself from burning a bigger hole in its pocket for the time being.

Counter action

While RJIL is trying to make the right moves, the incumbents too are trying to ensure that they do not compromise their leadership position. After gaining a first-mover advantage, Bharti Airtel has been steadily rolling out its 4G services across its licensed circles. Spectrum liberalisation has encouraged non-broadband wireless access (BWA) spectrum holders to foray into the space using spectrum in the 1800 MHz band. Idea Cellular and Vodafone India have picked up large amounts of spectrum in this band in the recent auction and can become potential challengers for RJIL in the 4G space over the long term.

The looming BWA roll-out deadline will also see other players holding spectrum in the 2300 MHz band launching services and competing with RJIL in select circles. As per government rules, all the companies that won BWA spectrum in 2010 are required to roll out services in at least 90 per cent of their service areas by August 2015. However, at present RJIL, is better prepared than its competitors for a service launch in the BWA space.

Fortunately for RJIL, 4G ecosystem development continues to be at a nascent stage. In fact, even the 3G services launched by many service providers have failed to match their revenue expectations in most circles. This impacts all LTE operators, including those that are already offering these services (Bharti Airtel and Aircel), those that are planning to do so in the near term (like RJIL) and the ones that are contemplating a foray into the market (Idea, Vodafone, etc.).

Conclusion

The question that is intriguing the industry is, why are there service delays when everything seems to be on track for RJIL? According to industry sources, the company seems to be grappling with some technical issues. One cannot ignore the significant bearing that RJIL’s loss has on the overall balance sheet of Reliance Industries Limited. Further, given the long gestation period of the telecom business, analysts expect that once its network is up and running, it is likely to incur monthly expenses of around Rs 3 billion on tower rentals, Rs 3.2 billion on interest on borrowings and many other expenses, which incremental profits from petrochemicals and refinery expansions may not be able to compensate for.

While it has been a long wait, the industry can now expect RJIL’s services to hit the market soon given that a little over four months are left for complying with the government’s BWA roll-out regulations.

Going forward, the service launch by RJIL is expected to usher in some dynamism into the data segment. Its potentially reasonably priced 4G services would give a shot in the arm to the 4G market. As for its impact on the incumbents’ business, the entry of a new player like RJIL will definitely put pressure on revenue growth, margins and capital expenditure. At the same, it will result in the creation of huge capacity across the telecom value chain. As for the consumers, they can look forward to exciting times in the 4G space.