Mukesh Ambani's New Year gift: Free Jio Offer Till March 2017

Move to put further pressure on incumbents

Mukesh Ambani-owned Reliance Industries (RIL) further extended the free usage period for Jio services to its existing and new customers till March 31, 2017, pushing the start of Jio’s commercial operations to the next financial year.

“Starting December 4, 2016, every new Jio user will get Jio’s data, voice, video and the full bouquet of Jio applications and content, absolutely free, till March 31, 2017. We are calling this Jio Happy New Year offer. The benefits will be available to all subscribers signing up for Jio services up to March 3, 2017,” said Mukesh Ambani, chairman, Reliance Industries, in a live video address over the firm’s social media channels to its stakeholders. Ambani further added that all existing customers under the Jio Welcome offer would automatically be signed up for the new offer on January 1, and get extended benefits till March 31, 2017.

The decision to further extend promotional services will push RIL’s accounting for both the depreciation on capital invested in telecom and earnings from this vertical to the next financial year, say analysts. They point out that the larger and adverse impact, however, would be on the incumbents.

Ambani maintained that Jio was not getting adequate points of interconnect (PoIs) from the incumbent operators and termed their behaviour "anti-competitive". As a result, he said he was unable to deliver on his promise of providing "best customer and service experience" to customers. “We have not received the required support from existing operators. In the last three months, nearly 9 billion calls from Jio customers to the networks of our three largest competitors were blocked. The benefits of Jio's superior voice technology have been denied to Indian customers due to such anti-competitive behavior of incumbent operators,” Ambani said. He expressed confidence that over the coming weeks, the voice experience would improve due to "imminent availability of sufficient PoIs from other operators".

The Telecom Regulatory Authority of India (Trai) had allowed Jio to provide free service till the end of this year for customers who subscribed to its services till December 3. The telecom regulator said today it would examine Reliance Jio's latest offer providing free 4G services for all its customers till March 31, 2017. "We will look into it. Every tariff that is filed before us is examined. We will come up with our response at appropriate time," Trai chairman R S Sharma told Press Trust of India when asked about the validity of Jio's offer.  

According to Trai rules, promotional offers can only run for 90 days. “Thus, a new scheme is more of a business call for the company,” said an analyst from a domestic brokerage firm, who did not wish to be identified.  

In September, RIL announced all Jio services would be offered free to its customers up to December 31, 2016, under the Jio Welcome offer. In order to follow the Trai guideline, Jio services were to be first offered free up to December 31, only to those customers who enrolled up to December 3. The new promotional offer will now offer free services to both existing and new customers up to March end.

Along with the extension of the Jio promotional offer, RIL will also introduce JioMoney merchant app starting Monday. “Starting December 5, every merchant can download the JioMoney merchant application. Consumers use their JioMoney wallets to pay merchants from their bank accounts and merchants can use the JioMoney merchant app to accept these payments directly into their bank accounts,” said Ambani. JioMoney looks to add 10 million small merchant retailers in the next few weeks.

JPMorgan analysts Pinakin Parekh and Sagar Sanghavi in their report on Thursday said, “Any new network, and that, too, on a large scale as RJio, would have initial network stabilisation issues, which the free period allows the company to tweak. There is a greater probability of high data consuming consumers seeing the positive aspects of RJio’s offering and signing on to it.”

Analysts see the move to extend free services a bigger negative for incumbents than RIL in the near term. “From how the stocks reacted, the move is more negative for the incumbents and less for RIL where an extension was already expected,” said an analyst from a domestic brokerage firm.

For RIL, the extension will push reporting of earnings and depreciation to the next financial year. “The financial impact is very clear; monetisation not happening beyond December is a negative impact as costs are being incurred. The earnings will start coming from the next financial year. The FY17 earnings get protected from the depreciation hit as earnings would have been lower for the two-three month period. Next year, the petchem operations’ revenue will also possibly act as a cushion. It is less likely that the entire consumer base will stay once Jio starts charging,” said Nitin Tiwari, analyst with Antique Stock Broking.

Most analysts refrained from estimating the financial impact of extending free services for another three months. “The company has not revealed the cost structure so far, so we will need to wait and see what the cost and impact of extending free services for another three months will be,” said a third analyst.  

A Bank of America Merrill Lynch report said, “Publication of Jio’s profit and loss account (costs, average revenue per user, retention ratios) - allowing some crystallisation of Jio valuations - would have been a big catalyst for the RIL stock - which is now pushed out another three months.”

Incumbent players such as Bharti Airtel, Vodafone and Idea Cellular, in turn, would now be staring at a drop in revenue during the current quarter due to demonetisation and a possible impact from Reliance Jio’s new offer. In a November 25 report, CLSA had said the extension of Jio promotions beyond December 2016 would result in the foreign brokerage lowering its forecast revenue and Ebitda (earnings before interest, taxes, depreciation, and amortisation) for incumbents by one to eight per cent for FY17-FY19.

Incumbents are expected to roll out some freebies and new offers to their customers. “The incumbent players will evaluate the offer and will see how the customers react to Jio’s new offer based on which they will decide their strategy,” said an industry executive.

Bharti Airtel, sources add, may give five to 10 per cent more per recharge to its prepaid customers. This is being done in the backdrop of demonetisation, which has impacted revenues of telecom companies and also due to RJio’s announcement. Some experts said that the impact of demonetisation on the revenues of telcos could be to the tune of seven to eight per cent.

However, independent telecom expert Mahesh Uppal said, “Demonetisation has certainly slowed down the economy and has dampened spending. However, telecom expenditure is less discretionary than others. People may reduce consumption of telecom services but cannot possibly forgo their utility.”

Reference - http://www.business-standard.com/article/companies/mukesh-ambani-s-new-year-gift-free-jio-offer-till-march-2017-116120101401_1.html