India's youngest network operator, Reliance Jio, has posted strong earnings for its fiscal fourth quarter, ending in March, but there are signs of some fatigue in its recent performance.
Owned by Indian billionaire Mukesh Ambani, the operator recorded a 1.2% increase in net profit, to 5.1 billion Indian rupees ($76.74 million), compared with the previous quarter. This was only the second time the operator has posted a quarterly increase in net profit since it started operations about 18 months ago. Yet the sequential increase was tiny. Revenues, meanwhile, grew 3.5% quarter-on-quarter, to reach INR71.3 billion ($1.07 billion).
Reliance Jio remains the largest startup in the world, having secured a total investment of INR1.5 trillion ($22.55 billion). Due to the capital-intensive nature of the telecom business, service providers starting off can take a long time to make a profit. RJio has been an exception.
It has also bucked the trend when it comes to quarterly numbers, with other big players reporting massive drops in their profits during the quarter. Market leader Bharti Airtel Ltd. (Mumbai: BHARTIARTL) saw its net profit plunge 78%, to INR830 million ($12.5 million), while Idea Cellular Ltd. posted a net loss of INR9.6 billion ($144.75 million). (See Fierce Competition Batters Airtel Profits Again.)
Having entered the market as a disruptor, RJio also continues to increase its market share, and served 20% of all customers in the recent quarter, up from 18% in the preceding one. While they have put up a strong fight, Bharti Airtel, Vodafone India and Idea continue to lose market share to Jio.
With a market share of 21.2%, Idea may soon lose its number-three ranking to RJio. Bharti Airtel, with 33.6% of the subscriber base, remains India's biggest operator, but its share has fallen from 40% when RJio first entered the market.
Its launch of heavily discounted services has caused a spike in Indian data usage and generated bad blood with the incumbents, which have complained to the Competition Commission of India (CCI), the country's antitrust regulator. Incumbents say the Telecom Regulatory Authority of India (TRAI) has favored RJio it with its policies, which have included cuts to the Interconnection Usage Charge (IUC), a fee operators pay one another when connecting inter-network calls.
Indeed, IUC rates have been lowered from 14 paisa to 6 paisa per minute. The effect of that reduction has been to halve interconnect costs for RJio and leave the incumbents worse off. RJio's interconnect costs fell from INR21.4 billion ($322 million) in the second quarter of the 2018 fiscal year to just INR10.7 billion ($160 million) in the fourth quarter. This was a key factor in helping RJio to record its first-ever profit during the quarter ending December 2017.
What should worry RJio is the continual fall in its monthly average revenue per user (ARPU) figure. This fell to INR137 ($2.06) in the recent quarter, from INR154 ($2.31) in the preceding one, owing to tariff cuts in January. Analysts expect ARPU to drop further in the coming quarters. There may be limited scope to keep exploiting the data market when even the incumbents are now gaining traction.
— Gagandeep Kaur, contributing editor, special to Light Reading