Telecom: Why was Reliance Jio’s launch delayed?

Reliance Jio is poised to launch its telecom operations this year, 5 years after it acquired 95% of Infotel Broadband Services from Himachal Futuristic (HFCL).  Infotel had bid Rs 12848 crores, across all the 22 telecom circles, for 20MHz of BWA spectrum, in 2010; Reliance shall pay the fee post acquisition. The company strengthened its spectrum assets by participating in the subsequent auctions & bid for Rs 11054 crore in 2014 & Rs 10077 crore in 2015 to win additional spectrum in the 800 MHz & 1800 MHz bands. The total investment of the company in the telecom venture - spectrum & network - is huge at about Rs 70000 crores. The launch, however, has been repeatedly delayed & employee attrition made analysts sit up & take notice.

That begs the question: Why the delay? Reliance Jio started off with the advantage of being the only BWA operator with a pan India presence. Since voice was not allowed on BWA earlier, it attracted a spectrum usage charge (SUC) of 1% only against 3 - 8% paid by operators with spectrum in the 800, 900, 1800 & 2100 MHz range, a clear strategic advantage. Analysts expected Jio to launch immediately to take advantage of its dominant position. However it was not to be.

Airtel was the first to rollout 4G networks on the 2300 MHz band & experienced technological limitation of signal transmission & indoor coverage issues. Unlike the west where urban structures - largely made of glass - ensured easier signal transmission, the majoritarian use of concrete in Indian urban settings inhibited signal propagation. Reliance, too, must have encountered a similar experience. The weak customer acquisitions by Airtel in the 4 circles it launched 4G operations must have convinced Reliance that postponement is a better strategy.

The other problem was the nascent device ecosystem on 4G. In 2003, Reliance - in its earlier telecom avatar - had circumvented the device ecosystem issue on CDMA by acquiring handsets in bulk, at a huge discount, courtesy it’s legendary “negotiation skills” & covered themselves further through insurance. Costs of deploying such a strategy would be high today. 

Reliance, therefore, delayed the launch but secured a regulatory approval for voice too on BWA - despite protests by other operators who saw it as an unfair advantage. The decision to provide a seamless 4G coverage across the 3 frequency bands - it currently owns - came much later. There is one problem through: except for 4 circles – Mumbai, MP, Assam & NE – it does not have contiguous airwaves of 5 MHz in the 800 MHz band which needs correction either through “spectrum swap” with other operators or through govt. notification on “spectrum trading”; Reliance would prefer the former.

Reliance, tempered from its first experience, is trying a lean & mean organizational model to make its second coming into telecom a success. RIL (Reliance Industries Ltd) has been restructured into 2 divisions - Industrial & Consumer - & the Retail & Telecom ventures fall under the latter. A common CSD (Customer service & Delivery) department for its consumer division is planned giving its telecom venture the advantage of lower apportioned costs. A common HR function across Retail & Jio too has been formalized. The company’s e-commerce venture too could be tasked to sweat both the Retail & Jio assets. Sharing of network with Reliance Communications reduces costs further.

With structures in place the company could, tentatively, launch its operations in June 2015. For details on the likely entry strategy see

http://meetrk.blogspot.in/2015/04/telecom-what-could-be-reliance-jios.html

The entire country is now waiting with bated breath the launch of Reliance Jio.