Expect tough battle where spectrum holdings critical
The battle for India’s mobile internet consumer has heated up considerably, with the soft launch of Reliance Jio’s 4G service to 90,000-odd employees. Though Jio has missed several deadlines over the years and the soft launch suggests Reliance is still being cautious—as with CDMA in 2002, VOLTE is a new technology, and Jio will have to push even handsets to achieve targets—but as with all things Reliance, the scale is awesome. Jio has spent upwards of Rs 1 lakh crore already versus Bharti Airtel’s Rs 1.6 lakh crore since inception, owns the second-largest amount of spectrum after Bharti Airtel, has a 2.5 lakh route kilometre optic fibre network connecting 18,000 towns across India already and, in places like Lutyens’ Delhi where setting up telecom towers is difficult, Jio has wired up the area to provide micro cell connectivity—at the Digital India launch, Reliance chairman Mukesh Ambani spoke of investing Rs 2.5 lakh crore across all digital platforms, though he never put a timeline to it. Add to the significantly higher internet speeds that 4G players like Jio will offer, a whole entertainment bouquet with curated movies and most television channels, and you are talking of a very different sort of internet from the dumb pipes offered till now. Whether the entertainment offering alone will be a big differentiator remains to be seen since incumbents like Bharti Airtel, Vodafone and Idea have also tied up with service providers like Eros to provide similar 4G offerings.
If Jio is to get the 100 million internet subscribers it is aiming for in 12 months, this means the company will have a 20% share of the total internet market by then. With just 100 million subscribers moving to 3G since its 2011 launch versus 220 million on 2G currently, achieving the Jio target means a surge in technology adoption of the type never seen before; also, right now, just 10-12 million 4G devices are being shipped to India each quarter, so Jio’s handset-push, at subsidised rates, will be critical. Also, incumbents like Bharti Airtel, Vodafone and Idea are dramatically scaling up their initiatives—Airtel is offering 4G in 400 cities already and plans to invest another Rs 45,000 crore over 3 years in upgrading just the infrastructure—and their existing customer base (233 million for Airtel for voice/data, 187 million for Vodafone and 164 million for Idea) makes up-selling easier than for Jio which has to sell a brand-new product.
What will be critical, eventually, will be the amount of spectrum each player has. At 16.52 MHz, Jio’s weighted average pan-India spectrum—weighted by circle-wise revenue—is second to Bharti Airtel’s 22.52MHz, and ahead of Vodafone’s 14.68MHz and Idea’s 12.85MHz. That means all players, especially Vodafone and Idea, will have to get more 4G spectrum soon, in the next auction or through M&As or trading/sharing. In Gujarat, for instance, neither Vodafone nor Idea have enough 1800 MHz spectrum to offer 4G; Idea can offer this across all of Haryana and Maharashtra only after the 1800 MHz band is harmonised since it doesn’t have spectrum across the full state, but has no chance of offering this in Mumbai. As Citi Research puts it, while Bharti’s spectrum holdings in the 800/1800/2300 MHz bands suitable for 4G cover 75% of its revenue base, the number is 64% for Idea and 50% for Vodafone. Whether or not Jio is able to come anywhere near its targets, the battle for 4G has just heated up dramatically, so apart from aggressive bidding in the next few rounds of auctions, expect more Gujarat-UP (West) kind of deals where Videocon’s 1800 MHz circles got snapped up by Idea at double the price paid in the auction just a few months prior to the sale in November.