The economics behind Reliance Jio .’s business

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  • In the past year, Reliance . has jioThe dealer commission bill rose a whopping 87%, according to a report by Jeffries.
  • The committees can only grow in the coming years if Jio fiber plans to expand its customer base from six million to 20 million.
  • While network costs also increased, in terms of tower rental and repair costs, Jio’s cost is much lower than its competitors.

Seven years after launching its services and three years after launching its premium Jio Fiber services, Reliance Jio has opened up its wallet to its dealers and sales channels.

According to a Jeffries report, dealer commission bills have increased by a whopping 87% over the past year, and this momentum is likely to continue into the next year.

“This may have been due to the continued upscaling of home broadband and the increase in commission intensity. Jio’s dealer commissions of 3.4% of sales are now in line with peers,” the report said.

However, the largest dealer is Reliance Retail with over 12,000 stores across India. The commissions earned by the retailer amounted to ₹2,580 crore in FY22. Total cost of sales and distribution decreased 6%, despite a 34% increase in gross subscriber numbers in FY22, year on year.

However, its commissions and channel costs may grow as it hopes for massive growth in these connections.

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Reliance Jio paid more than double the amount its closest rival Airtel did to acquire 5G spectrum. Aside from the large capex, analysts believe that Jio has multiple advantages over its rivals. From making 2G business in India to rapidly expanding its broadband presence, Reliance Jio’s future goals are tied to one common thread: 5G.

Jio Fiber has just over six million customers and has set a goal to grow to 20 million. But this commission increase won’t change the carefully curated economics of Jio’s business, even if capex will increase at all and impact free cash flows after it buys new 5G spectrum.

Tower costs, rent lower

Jio’s network costs also increased 13% year-over-year, driven by fiber usage costs and power and fuel costs. Revenues grew faster than these costs.

“Given the rising gap in revenue posted by the fiber business and the costs recognized by Reliance Jio Infocomm, these costs are likely to increase at a rapid pace in FY23 as well,” said Jeffries.

Regarding most other costs, Jio has a tight operation compared to its peers. According to a report from Jefferies, Reliance Jio’s average rental cost per tower is 30-40% lower than its rivals.

Even repair and maintenance costs of these towers are half what Airtel and Vodafone Idea pay, and the report says this is due to the newer network technologies used by Jio.

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Reliance Jio paid more than double the amount its closest rival Airtel did to acquire 5G spectrum. Aside from the large capex, analysts believe that Jio has multiple advantages over its rivals. From making 2G business in India to rapidly expanding its broadband presence, Reliance Jio’s future goals are tied to one common thread: 5G.

During the year under review, fuel costs at Jio’s locations increased by 14%. “This is largely in line with that for Bharti Airtel and Vodafone Idea. Repair and maintenance costs increased by 57% year-on-year. Even after this increase, Jio’s repair and maintenance costs per site remained 50% lower than comparable companies, mainly due to a much newer network,” the report said.

This is part of the economics of Jio’s strategy that will allow it to remain the most competitive player in the market, despite its recent 5G spectrum purchase bill being twice what Airtel paid for.

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