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Bigger, prettier and now profitable – Jio is poised to dominate India

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It’s bad news for those who thought the Jio bubble might pop and everything would return to normal in India; Jio’s latest quarterlies show it is a money making machine.

It came, it saw, it conquered. And all before the market incumbents could do anything about it. Perhaps the apparent inability of Jio’s rivals in doing anything to slow the growing tsunami was because of the belief this day would never come. Jio was fast burning through cash in acquiring customers and this could only last for so long, soon CEO Mukesh Ambani would empty his piggy bank, Jio would be bought by someone for tuppence and things would return to normal.

Other people might have believed there was a more nefarious plan underway from Ambani. Run telco pricing into the ground so rivals cannot make any money, creating an Indian monopoly for Jio. That’s when Jio would ramp up the prices and stop being a loss leader. Well, maybe not a monopoly, but with Idea and Vodafone merging, and Telenor, Tata and RCom exiting, the Indian telco space is certainly a lot less crowded.

Right now we are essentially down to four players after months of acquisitions and mergers. Jio is sniffing around RCom’s consumer business, Bharti Airtel has bought Tata Teleservices and Telenor India, Vodafone and Idea are merging to one entity. Aircel is still about, but it shouldn’t be too long before that is bought by someone. It has started to miss loan payments which is never a good sign. The other player is state-owned telco BSNL, and it wouldn’t be a complete stretch of the imagination if it was privatised. That could leave Jio, Bharti Airtel and Vodafone/Idea alone at the top, plus another couple of very minor players.

But neither has turned out to be winner. The latest quarterly results from Jio prove that you can be big, cheap and profitable. Service revenues for the quarter stood at $1.272 billion, up from $1.128 billion in the previous quarter, while total income stood at $1.078 billion compared to $963 million. But here’s the big one. Profit for the quarter was $79 million, compared to a loss of $42 million in the previous three months.

We appreciate that comparing quarterly revenues sequentially is not the best way to do it, but when you consider Jio was a start-up 12 months ago, it makes year-on-year comparisons very difficult. 12 months ago, total income was $150,000 for the quarter, so we are making an exception for this one. What is remarkable is that Ambani has managed to turn a start-up into a profitable machine in just over a year.

So where has the profit come from? Firstly, more customers. Ovum’s WCIS estimates Jio’s customer numbers have increased to 169 million, up from 138 million in the previous quarter. Other telcos in the space are also increasing their total customer numbers, but no-where near as quickly as Jio. Market share increased for Jio in the quarter as well, up to 13.9% from 11.7% three months prior, stealing market share from everyone else.

Growing your subscription base in India is nothing to be particularly proud of, it is a fast developing nation with a huge number of unconnected citizens, but who can grab hold of the most each month with decide who is profitable and who is not. Jio is winning that battle, as while it is grabbing new subscriptions, it is also managing to convert customers from everyone else as well.

Another interesting area is the expenses. Total expenses for the quarter stood at $957.75 million, down from $1.028 billion. This is where it looks like the majority of the profits have been realised, and we’ve broken some of the more interesting statistics down for you below:

Expense Quarter ending Dec 2017 Quarter ending Sept 2017
Network Operating Expenses $272.29 million $215.09 million
Access Charge (Net) $169.58 million $335.49 million
Licence Fees/Spectrum Charge $97.63 million $62.56 million
Financial Costs $104.12 million $105.62 million

The network operating expenses have increased, but maybe not as much as you would imagine for a telcos which is still young and rolling out its footprint, but the interesting one is the access charge, this is where there seems to be a notable saving.

The access charge, or termination charge, is an area which has been quite contentious for the last couple of months. In September, Indian regulator TRAI ruled the amount rivals are allowed to charge for termination of calls on their networks would be drastically decreased. As a market entrant with a much smaller infrastructure footprint than its rivals, Jio would have been pleased with the news. For those who are being ravaged by Jio’s free services to customers, it is a car crash of a decision.

This is certainly a battle which was proving to be quite bitter in the Indian telco space, and while it might sound like quite a boring one on the surface, you can see why Jio didn’t want to back down. Quite simply, it looks to be the difference between profit and loss.

Jio started life as a business which was shaking the status quo in the Indian telco space, but it been looking like the real deal over the last six months. The only question was whether such a business model was sustainable, but these financials prove it certainly is. Unfortunately for its rivals, Jio is here to stay, and now it’s making money, we expect to see some more aggressive moves.

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