India Ratings and Research (Ind-Ra) believes that the launch JioGigaFiber, a fibre-based broadband service for homes and businesses, by Reliance Industries Limited (‘IND AAA’/Stable) has the potential to disrupt the retail broadband segment and open up new digital avenues for the enterprise broadband segment.
Reliance Jio Infocomm is well positioned to capitalise on its wide fibre optic network across India, subject to it addressing last-mile connectivity challenges. While the JioGigaFiber would certainly increase competitive intensity among multiple system operators (MSOs) and direct-to-home (DTH) players, the extent of the impact across MSOs and DTH players would depend on their geographical diversity with regard to subscribers, the relative attractiveness of the market, and current tariffs and service offerings. Any aggressive market penetration strategies by RJio (such as free offerings) would be credit negative for extant players.
Fixed Broadband Offers Good Business Potential: India has a fixed broadband subscriber base of about 18 million, representing about 7% of the total household base of nearly 290 million and a 10% TV household penetration. The penetration levels are low compared with global averages. RJio has set a target of 50 million household, representing 18% of the total households. In Ind-Ra’s view, the target is achievable. RJio’s aggressive marketing could lead to an expansion in the broadband market, somewhat similar to the one that took place in the wireless mobile data market. Ind-Ra estimates that at the current monthly broadband tariff of INR500-600 per household, the potential market size for 50 million households could be INR300 billion-360 billion, significant portion of which could be tapped by RJio. New service offerings in the enterprise broadband segment could provide additional market opportunities.
RJio Well Positioned; Last-Mile Connectivity Challenge: RJio’s already has an extensive coverage of intra-city fibre optic network. This, along the potential acquisition of Reliance Communications Ltd’s optical fibre and spectrum assets would further consolidate R-Jio’s optical fibre reach. However, last-mile connectivity to enter the household (B2C) segment will be challenging owing to (a) a large number of approvals required from resident associations and local authorities, (b) permissions required for gaining access to buildings (multi-dwelling units) and customer homes to deploy in-house and in-building cables, and (c) possible resistance from thousands of local cable operators. Nevertheless, optical fibre connectivity to business users (B2B segment) will be relatively conducive for RJio. RJio’s penetration in the B2B segment would be governed by its service offerings.
Phased Roll-Out Correct Strategy: RJio will allow users to register for availing JioGigaFiber services through its website or MyJio app from 15 August 2018. The roll-out is likely to be in a phased manner, with the first phase in cities/localities with the highest registrations. This will enable RJio to identify potential demand areas and execute optical fibre roll-out in the most efficient way (with regard to capex/opex) across 1,100 cities.
Varied Impact on Extant Players: The impact of RJio’s entry in the broadband and cable business would be varied across MSOs and DTH players based on (a) their geographical diversity with regard to subscribers, (b) the relative attractiveness of the market (e.g. densely populated cities with a large number of multi-storey buildings and (c) current tariffs and service offerings. During FY19-FY20, high-density markets are likely to witness stiff competition, as the overall ecosystem is already in place for RJio to start providing its offerings. Regional players operating in third- and fourth-tier towns may not be an immediate competition threat, albeit long-term risk beyond FY20 remains.
Nevertheless, any aggressive market penetration strategies by RJio (such as free offerings, partnering with/acquiring local cable operators) could pose challenges to extant players. Even at a same price point, consumers may shift to RJio as its service offerings (e.g. content library and video calling) would be superior to basic cable services that are being offered by extant players. Also, the majority of MSOs are currently incurring large capex to expand their optical fibre networks. This puts their credit profiles at risk.
RJio’s optical fibre roll-out would be positive for content generators, as demand for and consumption of digital content is likely to rise post the availability of high-speed internet.