Reliance Industries Ltd (RIL) share price has gone up by 15.5 per cent in last five trading sessions in NSE since February 21, when the company announced that it would start charging Jio customers. After all, Jio launched services after six years of acquiring spectrum. It is offering free service for seven months after official launch.
However Bharti Airtel chairman Sunil Mittal said at Mobile World Congress in Barcelona that Jio’s existing tariff is not sustainable. Airtel is a competitor of Jio and its Q3 profits fell, thanks to Jio’s strategy of offering services free to subscribers. Hence, i can’t take Mittal’s words at face value.
However, a basic calculation shows that Jio’s tariff is not sustainable.
The company claims that it has a subscriber base of 10 crore. Let us assume that all of them get converted to paid customers.
Currently, Reliance Jio is offering two tariff packs – One, Rs 149 per month and another Rs 303 per month. Let us assume a blended tariff of Rs 240 per month.
Hence, Reliance Jio’s revenue will be Rs 2,400 crore per month. Out of this nearly 33% goes directly to the government in form of various taxes. Hence Jio’s real earning will be Rs 1,600 crore per month.
Reliance Jio claims that it has invested Rs 1.5 lakh crore in the company. Moreover, it has kept another Rs 30,000 crore for further investment. Therefore, servicing cost of its investment would be a minimum of Rs 2,500 crore for the remaining 13 years of spectrum.
Hence, Reliance Jio will not be able to meet even its investment cost as of now. I am not considering Opex and sustained capital investment.
This is no-brainer that the existing tariff of Reliance Jio is completely unsustainable business proposition.
I am very liberal in my calculations and even a subscriber base of 20 crore with other parameters remaining same will not make these tariff sustainable. Only Oil can save Jio.
(The writer is a well known telecom expert and a former CMD, VSNL)