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They expect Jio to grab a larger chunk of churning top-end Vi customers than Airtel as the telecom market leader is likely to offer stronger in-building broadband coverage in densely populated urban pockets, leveraging its standalone 5G<\/a> network running on efficient 700 MHz airwaves.
Jio is the sole holder of 700 MHz spectrum that it plans to use exclusively for 5G services.
“We expect Bharti and Jio to spend $7.7 billion\/$9.1 billion on capex (excluding spectrum) from FY23-25 and expect them to curtail their 3G\/4G capex and spend largely on 5G going ahead,” BofA Securities<\/a> said in a note to clients.
Analysts expect Airtel’s overall capex to be lower than Jio as the Sunil Mittal-led telco is rolling out 5G services on non-standalone (NSA) mode that uses existing 4G mid-band airwaves (1800 MHz, 2100 MHz) with C-band capacity 5G spectrum (3.3 GHz), unlike Jio's standalone 5G network that will use more expensive 700 MHz spectrum.
Jio’s 5G capex will be higher as it’s also spending on CPE (consumer premise equipment) that will be used to connect some 100 million households through fibre and\/or through its upcoming fixed wireless access (FWA) broadband service, Jio AirFiber.
JioAirFiber will be a fixed wireless service for homes to deliver fibre broadband-like speeds over a 5G network without the need for cables.
Jio has said it is investing Rs 2 lakh crore (including spectrum costs) to set up its 5G network with its initial 5G launch around Diwali. It’s targeting a pan-India roll out by end-2023. Airtel’s initial 5G launches too start in October with pan-India 5G coverage targeted by March 2024. Vi has given no timelines on 5G.
Goldman Sachs estimates that Jio would have to increase its annual earnings before interest, tax, depreciation & amortization (Ebitda)\/revenue by Rs 32,000 crore\/Rs 50,000 crore to generate double-digit (post-tax) returns on its incremental investment of Rs 2 lakh-crore on 5G.
“Our sensitivity analysis shows this would require a significant (Rs 100 per month, or +57% vs. current levels) average revenue per user (ARPU) increase or 150 million incremental subscriber gains coupled with an ARPU increase of Rs 25 a month, or a combination thereof,” Goldman Sachs said.
Jio reported a 4.8% sequential ARPU growth to Rs 176 in the June quarter.
In the near term, analysts expect some of Jio’s required incremental revenue to come from a mix of consumer wireless, fixed wireless and enterprise use cases. They, though, see limited visibility around incremental returns on Jio’s 5G investments, given the paucity of 5G use cases and Airtel’s relatively strong balance sheet.
“Even if Jio garners 50% of Vi’s current annualised revenue run-rate of Rs 37,200 crore (all else equal), its incremental annual revenues at Rs 18,600 crore would still be lower than the amount required to generate double-digit returns on its 5G capital investment,” said Goldman Sachs.
Analysts said monetisation of Jio’s ambitious 5G capex spends would also require higher revenues from the JioFiber business.
“Reliance's 1.1 million route km of fibre, which is 3-4x that of Bharti and Vi, and its investments in 700 MHz\/26GHz spectrum should help drive this business, especially with fibre penetration still low at 7% of households,” said Jefferies.