Reliance Industries deployment for telecom business at Rs 88,000 crore

Reliance Industries (RIL) has so far committed Rs 88,000 crore ($14 billion) of capital to its telecom business, sources told FE. This does not include the Rs 10,077.53 crore the telecom subsidiary, Reliance Jio Infocomm, will spend for its 800-MHz and 1,800- MHz spectrum won in the recently held auctions.

An Kotak Institutional Equities report dated April 20, notes that Reliance Jio has so far deployed about Rs 52,400 crore of capital as of March 31, against Rs 37,800 crore, as of March 31, 2014. Reliance Jio holds broadband wireless access spectrum in all the 22 telecom circles and has made significant progress in rolling out its 4G business, including physical network infrastructure, systems and processes, sales and distribution network.

A June 2014 report by Kotak noted that the Rs 70,000 crore of capex that was committed in 2013-14 could rise further depending on the operating losses before the business becomes self-sustaining. “We note that RIL’s Rs 70,000-crore capex is comparable to the cumulative investment of Bharti Airtel and Idea in their domestic businesses. Even established telecom operators are struggling to earn a decent RoCE on their depreciated assets,” the report stated.

The biggest concern with regards to the Reliance Jio’s telecom business is the long gestation period for profitability, the increased risks given the scale of planned investments in new technology (4G-LTE) and the competitive nature of the telecom industry, a recent Morgan Stanley report noted. On the other hand, the report added that with the launch the Reliance Jio 4G services around 9-12 months away, the regulatory environment has improved, the spectrum auction bidding was rational, and the 4G ecosystem is improving.

The Telecom Regulatory Authority of India (Trai) recently slashed various interconnection charges that one operator pays to the other for using their network, which analysts point out, will benefit new operators/ and smaller players as they would have more off-network calls than on-network. Trai has also recommended trading and sharing of spectrum, which will benefit newer players.

Around 92% of subscribers in India access the internet via mobiles. There are four major data operators in India, unlike voice, which has six to seven operators. The top four players have 84% share of the data market vs a 77% overall revenue market share and 72% minutes market share.

Reliance Jio plans to provide 4G services using LTE in 800-MHz, 1,800-Hz and 2,300-Hz bands. In 2014, Reliance Jio acquired spectrum in 1,800 MHz in 14 circles across India and, in March 2015, it acquired spectrum in the 800-MHz and 1,800-MHz in 13 circles. It holds master service agreements (MSAs) with tower companies, including Indus Towers, Viom Networks, among others, for the required infrastructure to roll out 4G services. Reliance Jio also tied up with Reliance Communication (RCom) in April 2013 for a Rs 1,200-crore fiber optic network infrastructure sharing deal, followed by a intra-city fiber infrastructure sharing deal in April 2014.

Reliance Jio plans to provide 4G services using LTE in 800-MHz, 1,800-Hz and 2,300-Hz bands. In 2014, Reliance Jio acquired spectrum in 1,800 MHz in 14 circles across India and, in March 2015, it acquired spectrum in the 800-MHz and 1,800-MHz in 13 circles. It holds master service agreements (MSAs) with tower companies, including Indus Towers, Viom Networks, among others, for the required infrastructure to roll out 4G services. Reliance Jio also tied up with Reliance Communication (RCom) in April 2013 for a Rs 1,200-crore fiber optic network infrastructure sharing deal, followed by a intra-city fiber infrastructure sharing deal in April 2014.

RIL’s outstanding debt as on March 31, 2015, was Rs 1,60,860 crore ($ 25.7 billion) against Rs 1,38,761 crore as on March 31, 2014. Last year, Reliance Jio signed syndicated term loan facilities, aggregating to $1.5 billion, to refinance loans and availed an $750-million loan backed by Korea Exim Bank to finance goods and services procured from Samsung Electronics for the infrastructure rollout of Reliance Jio.