RJio aims to corner 50% market by 2021

But given the pricing pressures, analysts are sceptical of the projections whichpegsectorrevenuestotakea 60% jump to ~3 lakh crore in four years

Reliance Jio (RJio) has set a target of capturing half the telecom sector’s projected revenues of ~3 lakh crore by FY21. The company, which will start charging customers from April 1, indicated this at an analyst meet on Thursday. The company also plans to hit an operating profit margin of 50 per cent on the back of an efficient network, which it claims operates at the lowest operating cost per gigabyte. If RJio manages to reach the projected numbers, it will be unprecedented given no new entrant at the global level has achieved more than 10 per cent market share after launching their services. In fact, most analysts had pegged a revenue market share of 20 per cent for the company by 2020. RJio is expected to breakeven at the operating profit level by the end of FY18 and achieve revenues of $3 billion (or ~20,000 crore), according to analysts at Morgan Stanley. This would translate to a 10 per cent revenue market share at the end of FY18. To achieve its revenue target of ~1.5 lakh crore over the next four years, the company has to grow by 65 per cent annually.

The company is banking on rapid growth of data services and its superior network and capacity edge to achieve its goals. RJio highlighted its current cell (spectrum and tower) capacity is 4.7 times that of the sector and the company is working on doubling its current capacity in calendar year 2017. Further, given that 60 per cent of its sites are fiberised (connected with high-speed optic fibre) versus 20 per cent for industry and its capacity advantage will mean the competition will take at least threefour years to catch up.

After the launch of RJio services, data consumption has expanded by six times from 200 million gigabytes (GB) per month to 1.2 billion GB a month. Customers, according to RJio, have the ability to pay ~500 per month, if the 2009 average revenue per user (ARPU) of ~179 is used as a base and adjusted for inflation. The company, which had 100 million users in December, expects to close FY17 at 120 million users.

RJio has said the sector’s voice services will shrink by 66 per cent by 2021 to ~50,000 crore from the current ~1.5 lakh crore and they will shift to the data segment. While analysts believe the data segment will improve substantially over the next four years, they are sceptical about the revenue growth of the sector. Says Manoj Behera of Phillip Capital, “The 60 per cent increase in industry revenues from ~1.87 lakh crore to the estimated ~3 lakh crore over the next four years looks ambitious as sector revenues, which have seen a decline in the December quarter, are expected to shrink further in the coming quarters. A 15 per cent annual growth looks difficult.” What could change, however, is any upward movement in prices in a post-consolidation phase. RJio, according to analysts at Bank of America Merrill Lynch, indicated the company will raise prices over time. Currently, however, in an environment of falling prices and the capping of tariffs will make it difficult to improve industry revenues.

Incumbent operators will have to follow RJio to reset the prices for their premium or high-value customers and these will come down from levels of ~700-800 to about ~300, in terms of ARPUs. Given the large current base and two SIM cards per customer, fresh customer additions are also unlikely to happen at the rate recorded earlier, says an analyst.