Reliance Jio's foray into the wired broadband services for homes and businesses has the potential to disrupt the retail broadband segment and open up new digital avenues for the enterprise broadband segment, according to Ind-Ra. Furthermore, the rating firm believes that Reliance Jio is well positioned to capitalise on its wide fibre optic network across India, subject to it addressing last-mile connectivity challenges. "While the Jio GigaFiber would certainly increase competitive intensity among multiple system operators (MSOs) and direct-to-home (DTH) players, the extent of the impact across MSOs and DTH players would depend on their geographical diversity with regard to subscribers, the relative attractiveness of the market, and current tariffs and service offerings. Any aggressive market penetration strategies by RJio (such as free offerings) would be credit negative for extant players," said Ind-Ra in a media statement.
At the moment, India has a fixed broadband subscriber base of around 18 million, representing about 7% of the total household base of nearly 290 million and a 10% TV household penetration. The penetration levels are low compared with global averages. Reliance Jio has set a target of 50 million households, representing 18% of the total households. As per Ind-Ra's view, the target is achievable. Jio's aggressive marketing could lead to an expansion in the broadband market, somewhat similar to the one that took place in the wireless mobile data market.
Ind-Ra estimates that at the current monthly broadband tariff of Rs 500-600 per household, the potential market size for 50 million households could be Rs 300 billion-360 billion, a significant portion of which could be tapped by Jio. "New service offerings in the enterprise broadband segment could provide additional market opportunities," stated Ind-Ra.
Reliance Jio already has extensive coverage of intra-city fibre optic network. This, along with the potential acquisition of Reliance Infrastructure’s optical fibre and spectrum assets, would further consolidate Jio’s optical fibre reach. However, Ind-Ra firmly believes that last-mile connectivity to enter the household (B2C) segment will be challenging owing to (a) a large number of approvals required from resident associations and local authorities, (b) permissions required for gaining access to buildings (multi-dwelling units) and customer homes to deploy in-house and in-building cables, and (c) possible resistance from thousands of local cable operators. Nevertheless, optical fibre connectivity to business users (B2B segment) will be relatively conducive for RJio.
Jio's penetration in the B2B segment would be governed by its service offerings.
In addition, Ind-Ra stated that the phased rollout is a correct strategy by Jio. For the unaware, Jio will allow users to register for availing JioGigaFiber services through its website or MyJio app from August 15, 2018. The rollout is likely to be in a phased manner, with the first phase in cities/localities with the highest registrations. This will enable the company to identify potential demand areas and execute optical fibre roll out in the most efficient way (with regard to capex/opex) across 1,100 cities.
Speaking about the impact on extant players, Ind-Ra states that the Jio’s entry in the broadband and cable business would be varied across MSOs and DTH players based on (a) their geographical diversity with regard to subscribers, (b) the relative attractiveness of the market (e.g. densely populated cities with a large number of multi-storey buildings and (c) current tariffs and service offerings.
During FY19-FY20, high-density markets are likely to witness stiff competition, as the overall ecosystem is already in place for Reliance Jio to start providing its offerings. Regional players operating in third-tier and fourth-tier towns may not be an immediate competition threat, albeit long-term risk beyond FY20 remains, stated the rating firm.
Nevertheless, it's also said that any aggressive market penetration strategies by Jio, such as free offerings, partnering with/acquiring local cable operators could pose challenges to extant players. Even at the same price point, consumers may shift to the new entrant as its service offerings (e.g. content library and video calling) would be superior to basic cable services that are being offered by extant players. Also, the majority of MSOs are currently incurring large capex to expand their optical fibre networks. This puts their credit profiles at risk.
Ind-Ra concluded that Jio's optical fibre rollout would be positive for content generators, as demand for and consumption of digital content is likely to rise, post the availability of high-speed internet.