Reliance Jio Might Raise Tariff Prices to Meet Expenses of Lease Deals Worth Rs 9,000 Crore

Bharti Airtel and Vodafone Idea are both looking to raise Rs 25,000 crore in the upcoming months

By April 23rd, 2019 AT 8:37 PM
Highlights
  • Jio has come into a 20-year pact for 50% of the fibre capacity and is also the anchor tenant on the 175,000-odd towers
  • The Mukesh Ambani telco now boasts of having a massive 306.7 million users

According to a new report, Reliance Jio Infocomm might need to raise Rs 9,000 crore in funding as it will be required to make various payments in this financial year, ET Telecom reported. The Rs 9,000 crore fund would be used to manage Reliance Jio’s long term capacity leasing deals with special purpose vehicles (SPVs) which were created to hold its newly demerged fibre and tower assets. There is also the fact to keep in mind that rival telcos like Bharti Airtel and Vodafone Idea are also on the verge of raising massive amounts in the upcoming months.

Reliance Jio Might Have to Rethink Pricing Strategy

The brokerage firm, JP Morgan said in a note to its clients, “The likelihood of Jio raising prices is higher today than it was six to nine months ago, which has positive implications for incumbent peers, particularly, Vodafone Idea.” JP Morgan also added that investors are growing cynical by the moment as they believe that Bharti Airtel and Vodafone Idea’s plan of raising money might increase their capacity which might trigger Reliance Jio to reiterate its pricing strategy. The main question would be whether or not Jio would be able to afford to expand its balance sheet investments for the next two or three years.

Vodafone Idea Limited and Bharti Airtel both are seeking to raise Rs 25,000 crore each to solidify their stance against Reliance Jio Infocomm and to expand their 4G push. Reliance Jio’s management, on the other hand, held a different position as in the post-results analysts call it said that the telecom operator would not tweak the tariffs and would only focus on gaining subscriber market share.

Getting External Tenants Tough for Reliance Jio

To recall, back in 2016 when Reliance Jio had forayed into the telecom industry in September it had forced the other telecom operators to lower their tariffs thus bringing a new surge in the sector. The Mukesh Ambani led telco definitely gained subscribers this way, but the industry was bruised with bad financial troubles. However, since the last 16 months, the prices in the industry have majorly stabilised and with the competition now down to only three operators in the industry, the condition is expected to prevail.

According to analysts, although Jio’s SPVs for holding the tower and fibre assets managed by infrastructure investment trusts remove the refinancing requirements, it would incur the telco material cash cost since Jio has come into a 20-year pact for 50% of the fibre capacity and is also the anchor tenant on the 175,000-odd towers. Experts are also of the belief that once external tenants come onboard, Reliance Jio’s costs would decrease but they also believe that it won’t be easy for external tenants to come onboard since both Vodafone Idea and Bharti Airtel have their own tower arms – Indus Towers and Bharti Airtel. Notably, the tenants for fibre needn’t necessarily be telecom operators, but they could also be ISP (Internet service providers), media distribution companies and more.

Reliance Jio Continues to Register Profitable Quarters

Kotak, in its note, said, “Lack of operating leverage in earnings prints continues to surprise as network opex per unit of data carried on the network stayed flat. This challenges our understanding of the wireless business being an inherently high operating leverage one, and Jio has been remarkably consistent in challenging our understanding of the business.”

The Mukesh Ambani telco now boasts of having a massive 306.7 million users. The company also reported a 65% jump in net profit in the fourth quarter thus registering a sixth profitable consecutive quarter mainly driven by customer additions and data consumption.

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Chakri is a go-to guy for your next smartphone recommendation. Back in his engineering days, he used to play with smartphones by installing custom ROMs and that passion got him into the tech industry. He still goes nuts about a smartphone knocking his door for review. Currently managing everything at Telecom Talk, Chakri is trying to master PUBG Mobile in his free time.

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