 "Jio launches mother of all telecom battles")
Thirteen years after its first disruptive effort in telecom, popularly known as “monsoon hungama”, Reliance Industries (RIL) is seeking to change the rules of the game again. Addressing shareholders at the company’s 42nd annual general meeting on Thursday, RIL Chairman Mukesh Ambani started his speech with: “… today, RIL will write history.” For the next one-and-a-half hours, he tried to walk the talk by unveiling a tariff plan for Reliance Jio aiming to reconfigure the telecom industry’s revenue composition.
Jio announced “always” free voice calls and priced data at Rs 50/GB, 80 per cent lower than the current industry average of Rs 250/GB. The company also announced the launch of 4G handsets priced at Rs 3,999 and personal routers at Rs 1,999. By owning the entire ecosystem, Jio, backed by the might of Reliance’s footprint across retail and content programming — news, entertainment and movies — is armed with a complete offering for the mobile broadband consumer.
From September 5, everyone will be able to access the service, which will still be free till the end of the year.
Jio will offer data plans starting at Rs 19 a day for occasional users, Rs 149 a month for low data users and Rs 4,999 a month for heavy data users.
There will also be no national roaming charges for Jio users. Ambani announced 25 per cent more data for students, one million Wi-Fi hotspots across the country, “best-ever international calling rates”, unlimited subscription to Jio app and special solutions for enterprises. The speech had its moments of fun as Ambani took pot-shots at incumbents for their legacy networks, which are “mostly 2G, sometimes 3G and once-in-a-while 4G”.
His passion for Bollywood came through when he said Indians had come to appreciate and applaud Gandhigiri. “Now we can all do Data-giri, which is an opportunity for every Indian to do unlimited good things.”
But, Ambani didn’t mince words when talking about the competition, asking them “not to misuse their market power by creating unfair hurdles, when it comes to providing points of interconnect between their networks and Jio’s networks”. Telecom operators not only have a legal obligation to provide points of interconnect to other operators but also cannot limit customers’ right to migrate to Jio using mobile number portability, he said.
Even as he was speaking, Rs 13,000 crore of investor wealth was wiped off as shares of incumbents crashed. Ratings agency India Ratings and Research revised the sector's outlook for financial year 2016-17 to stable-to-negative from stable, as Jio is set to intensify competition, which will squeeze market share, margins and credit metrics of incumbents. In a note, Credit Suisse said Jio's launch has been one of the key worries for the past couple of years, and this is turning out to be quite negative. Shares of Bharti Airtel declined 6.4 per cent on the BSE to Rs 310.70, Idea Cellular lost 10.5 per cent to Rs 83.70 and Reliance Communications fell 8.8 per cent to Rs 49.15.
Reliance Industries, too, fell 2.7 per cent to Rs 1,029.15. Effectively, by opting for Jio plans, the average monthly mobile bill for a mid-to-high-end subscriber could come down by 50-60 per cent, according to CRISIL Research estimates. Quite clearly, Reliance is betting on humongous volume play through a material increase in data usage to offset lower tariffs, Crisil said.
Corporate India cheered RIL's disruptive move on Twitter, with Anand Mahindra saying: "From 132 million to 650 million mobile broadband users by 2020 needs a revolution. It's begun with Reliance Jio." Kiran Mazumdar Shaw joined in saying: "India would have the largest telephony (sic) at the lowest rate - economies of scale."
While reiterating his ambition to acquire 100 million subscribers in the shortest span of time, Ambani expressed hope that RIL's consumer businesses, led by digital services, would see rapid growth. He said: "I am confident that our consumer businesses will, over several years be of the same size and earnings as our petrochemicals and refining business. These two growth platforms will create continuing value for all stakeholders."
Reliance, which has been at war with incumbents over interconnect bandwidth, hoped competitors would not impair consumer experience and grant them the requisite interconnect points. Bharti Airtel responded with a statement that said: "We welcome Reliance Jio's call to leading operators to work together. As a responsible operator, we will fulfill all our regulatory obligations as we have always done."
A Vodafone India spokesperson said, “We have always offered great value to our customers, backed by excellent customer service, a nationwide presence, and Vodafone SuperNet – our best network ever. We will continue to do so for our hundreds of million customers across the country.”
Another key highlight of the AGM was Reliance's bid to de-risk the commodity business from the vagaries of cyclicality by making sustainable annuity earnings from its petrochemicals and refining business.
This AGM was critical for RIL as it marks the completion of a very heavy capex cycle and two of its key projects worth $50 billion – petcoke gassification and telecom project – are to go commercial this year. These projects are slated to change the earnings profile of the company. Ambani said: "As we complete the current investment programme and 40 years of Reliance's history as a public company, we will have created a solid foundation for continuing growth for many years to come. Our petrochemicals and refining business is poised for a 40-50 per cent growth in earnings and cash flows with an annuity-like profile."
The capex cycle kicked off five years back with RIL investing $12 billion in projects for its petrochemical business. A part of this investment was setting up of a petcoke-integrated gassification combined cycle plant and a refinery off-gas cracker.
The company looks to complete its petcoke gassification project by the first half of 2017, Ambani said. The refinery off-gas cracker in Jamnagar will use ‘off gases’ from the refinery as feedstock. Ambani added that the cracker project is targeted to be mechanically complete by December this year.
For its planned imports of ethane from the US as feedstock for the cracker business, Ambani added the required dedicated ships are expected to be delivered over the next two quarters. “This project involves dedicated ships, pipelines and modification to existing facilities and the full project will be ready by the end of this financial year,” he said. He added the petrochemicals and refining business is poised to grow at 40-50 per cent in earnings and cash flows.
Ambani added the company so far had divested $1 billion worth investments in the midstream business and will continue to look for further monetisation opportunities.
WHAT’S THE DEAL?
Jio announced “always” free voice calls and priced data at Rs 50/GB, 80 per cent lower than the current industry average of Rs 250/GB. The company also announced the launch of 4G handsets priced at Rs 3,999 and personal routers at Rs 1,999. By owning the entire ecosystem, Jio, backed by the might of Reliance’s footprint across retail and content programming — news, entertainment and movies — is armed with a complete offering for the mobile broadband consumer.
From September 5, everyone will be able to access the service, which will still be free till the end of the year.
Jio will offer data plans starting at Rs 19 a day for occasional users, Rs 149 a month for low data users and Rs 4,999 a month for heavy data users.
There will also be no national roaming charges for Jio users. Ambani announced 25 per cent more data for students, one million Wi-Fi hotspots across the country, “best-ever international calling rates”, unlimited subscription to Jio app and special solutions for enterprises. The speech had its moments of fun as Ambani took pot-shots at incumbents for their legacy networks, which are “mostly 2G, sometimes 3G and once-in-a-while 4G”.
His passion for Bollywood came through when he said Indians had come to appreciate and applaud Gandhigiri. “Now we can all do Data-giri, which is an opportunity for every Indian to do unlimited good things.”
But, Ambani didn’t mince words when talking about the competition, asking them “not to misuse their market power by creating unfair hurdles, when it comes to providing points of interconnect between their networks and Jio’s networks”. Telecom operators not only have a legal obligation to provide points of interconnect to other operators but also cannot limit customers’ right to migrate to Jio using mobile number portability, he said.
Even as he was speaking, Rs 13,000 crore of investor wealth was wiped off as shares of incumbents crashed. Ratings agency India Ratings and Research revised the sector's outlook for financial year 2016-17 to stable-to-negative from stable, as Jio is set to intensify competition, which will squeeze market share, margins and credit metrics of incumbents. In a note, Credit Suisse said Jio's launch has been one of the key worries for the past couple of years, and this is turning out to be quite negative. Shares of Bharti Airtel declined 6.4 per cent on the BSE to Rs 310.70, Idea Cellular lost 10.5 per cent to Rs 83.70 and Reliance Communications fell 8.8 per cent to Rs 49.15.
Reliance Industries, too, fell 2.7 per cent to Rs 1,029.15. Effectively, by opting for Jio plans, the average monthly mobile bill for a mid-to-high-end subscriber could come down by 50-60 per cent, according to CRISIL Research estimates. Quite clearly, Reliance is betting on humongous volume play through a material increase in data usage to offset lower tariffs, Crisil said.
Corporate India cheered RIL's disruptive move on Twitter, with Anand Mahindra saying: "From 132 million to 650 million mobile broadband users by 2020 needs a revolution. It's begun with Reliance Jio." Kiran Mazumdar Shaw joined in saying: "India would have the largest telephony (sic) at the lowest rate - economies of scale."
While reiterating his ambition to acquire 100 million subscribers in the shortest span of time, Ambani expressed hope that RIL's consumer businesses, led by digital services, would see rapid growth. He said: "I am confident that our consumer businesses will, over several years be of the same size and earnings as our petrochemicals and refining business. These two growth platforms will create continuing value for all stakeholders."
Reliance, which has been at war with incumbents over interconnect bandwidth, hoped competitors would not impair consumer experience and grant them the requisite interconnect points. Bharti Airtel responded with a statement that said: "We welcome Reliance Jio's call to leading operators to work together. As a responsible operator, we will fulfill all our regulatory obligations as we have always done."
A Vodafone India spokesperson said, “We have always offered great value to our customers, backed by excellent customer service, a nationwide presence, and Vodafone SuperNet – our best network ever. We will continue to do so for our hundreds of million customers across the country.”
Another key highlight of the AGM was Reliance's bid to de-risk the commodity business from the vagaries of cyclicality by making sustainable annuity earnings from its petrochemicals and refining business.
This AGM was critical for RIL as it marks the completion of a very heavy capex cycle and two of its key projects worth $50 billion – petcoke gassification and telecom project – are to go commercial this year. These projects are slated to change the earnings profile of the company. Ambani said: "As we complete the current investment programme and 40 years of Reliance's history as a public company, we will have created a solid foundation for continuing growth for many years to come. Our petrochemicals and refining business is poised for a 40-50 per cent growth in earnings and cash flows with an annuity-like profile."
The capex cycle kicked off five years back with RIL investing $12 billion in projects for its petrochemical business. A part of this investment was setting up of a petcoke-integrated gassification combined cycle plant and a refinery off-gas cracker.
The company looks to complete its petcoke gassification project by the first half of 2017, Ambani said. The refinery off-gas cracker in Jamnagar will use ‘off gases’ from the refinery as feedstock. Ambani added that the cracker project is targeted to be mechanically complete by December this year.
For its planned imports of ethane from the US as feedstock for the cracker business, Ambani added the required dedicated ships are expected to be delivered over the next two quarters. “This project involves dedicated ships, pipelines and modification to existing facilities and the full project will be ready by the end of this financial year,” he said. He added the petrochemicals and refining business is poised to grow at 40-50 per cent in earnings and cash flows.
Ambani added the company so far had divested $1 billion worth investments in the midstream business and will continue to look for further monetisation opportunities.
WHAT’S THE DEAL?
- Announces 4G devices priced at Rs 2,999, Rs 3,999, Rs 4,999 and Rs 5,999
- No roaming charges for voice
- Students to get 25% more data on Jio tariffs
- The Rs 149 plan, available for both prepaid and postpaid users, will offer 300MB data and 100 SMSes with a validity of about a month