Demystifying the Reliance Jio Infocomm Mobile / Data Services Enigma

Breaking News - Reliance 4G in IndiaAs expected by us, Reliance Jio Infocomm Ltd [RJIL] has entered the Bidding Fray for Telecom Spectrum in 900/1800MHz along with 7 other operators of which Aircel, Uninor and Tata DoCoMo were surprise entrants. Mukesh Ambani’s Reliance Jio made the initial mistake of bidding for in-efficient 2300MHz spectrum in 2010 hoping 4G Data Take Off by 2014. However, with spectrum prices lower and industry conditions (including tariffs) better than 2012, RJIL now seems keen to acquire additional spectrum. The immediate impact is that of intense competition in auctions.

Unlike the low-priced voice strategy of other recent challengers, with an 1800 & 2300 voice & data strategy RJIL could target the top end of incumbents’ customer base without having to resort to steep price discounts. Conditions now are even more conducive for RJIL’s business case than in Aug-2012, with 1) up to 50% cut to spectrum reserve prices after successive failed auctions – with 900MHz now priced at roughly the same price that 1800MHz was priced 18 Months ago.

What is Reliance JIo’s GamePlan in the Spectrum Auction ?
Option-1 At the top of my Guesstimate, I stick to my previous Analysis on Why Reliance Jio will bid for 900Mhz Spectrum in Delhi and Mumbai.

Option-2 Reliance Jio will deploy TD-LTE on 2300 MHz and provide voice with fallback onto 2G or 3G network on the 900/1800 spectrum from auctions. Going by past experience (ex. Uninor), we believe the fallback network on 900/1800 can be launched within nine months.

Option-3 Reliance Jio will use the spectrum from auctions to roll out an FDD-LTE network [1800MHz Band] and offer voice through VoLTE, and use the 2300 to enhance data capacity at select locations.

We believe the first option has the least lead time and the largest addressable market given the current state of device ecosystem. This will lead incumbents may be forced to step up network investments / capex in order to defend their business against a well-capitalised new entrant. The very shock of 8 participants in the auction has sent Airtel, Idea Cellular stocks down by 5% in today’s trading.