Within 15 months of starting commercial operations, Reliance Jio Infocomm turned profitable, posting a net profit of Rs 504 crore for the third quarter of the fiscal year. It had posted a net loss of Rs 271 crore in the previous quarter. It clocked a revenue of Rs 6.879 crore, up nearly 12% on quarter.
Jio’s rivals are facing tough times. Bharti Airtel’s third-quarter net profit plunged 39%, missing estimates and dropping for the seventh straight quarter. Idea Cellular, too, is expected to post a loss as it has been doing for quite some time.
A major reason for Jio’s profit and loss of Airtel is the 57% cut in the interconnection usage charge (IUC) by the Telecom Regulatory Authority of India from 1 October last year. IUC is paid by telcos generating calls to networks that receive them. Bharti Airtel, India’s largest telco with over 289 million mobile customers, along with Vodafone India and Idea Cellular account for over 60% of the country’s mobile users.
They are net receivers of calls. With the in IUC, they were net revenue losers.
Jio, which added a net 21.5 million to end December with 160.1 million users on its network, still has more calls terminating on its rivals’ network which have more number of users, and is thus a net payer of IUC. In the latest third quarter, Jio’s paid nearly Rs 1,082 crore as IUC, less than half of the nearly Rs 2,140 crore it paid in the previous quarter.
While its first quarterly profit is an important milestone and the IUC gives it an edge over its rivals, Reliance Jio’s ascendancy is fuelled mainly by its disruptive strategy. The Jio juggernaut rolled into the market on low prices and freebies and it is likely to keep giving trouble to its rivals as its further sharpening it strategy.
Reliance Industries chairman Mukesh Ambani is the man who has his finger on the pulse of Indian consumer. In a speech at the Economic Times Awards for Corporate Excellence recently, Ambani said when the fashion was to invest abroad, Reliance took a contrarian bet to invest Rs 3.5 lakh crore in India and that has paid off handsomely. Ambani was talking of his telecom venture, Reliance Jio, that disrupted the sector with freebies and a flood of cheap data.
After its smashing entry and now the first profit, Jio is making another contrarian bet. When retail companies are logging into India, Ambani is betting big on Bharat. Amazon and Flipkart may be putting billions of dollars in e-commerce wars, Ambani plans to ride high on the corner shops—the small kirana stores.