Daybreak - Why Reliance Jio is eyeing a state government's pet project

Episode Date: February 1, 2023

In the last three quarters, the revenues of India's largest telco have been seeing a steady slowdown. A Rajasthan government's free-smartphones-for-women project came along just in time and won Reliance Jio managed to bag 60% of the contract value.But now Jio is waiting, fingers crossed, for the new budget with reports of the government shelving the project.If the project does come through, what would it mean for Reliance Jio?Tune in to find out.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too. It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

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The country's largest telecom company Reliance Geo has been on a role lately. Quite literally, I mean, it's been rolling out 5G services at lightning speed in the last few months. Geo 5G services are now available in 225 cities across the country. While this may be a momentous time for geo, there is another side to the story. In the last three quarters, the Telco's revenues have been seeing a slowdown. Let me help you picture it.

In the first quarter of 2022, the revenue from operations of geo platforms, which is Gio's parent company, was over 8%. In the next quarter, it fell to 5.4%. In the one after that, it was 3.4%. and in the last quarter that ended in December 2020, it was only 2.5%. Even its subscriber base saw a modest growth of only 1.2% in the last quarter. And this was despite Gio not hiking its tariff in the last three months of 2022. Now, because of this, the company's net profit also witnessed a similar trend.

And not to forget, the rise in depreciation due to the increase in network expenses after the 5G rollout. So what Gio could really do with right now is a quick shot in the arm. So it has anxiously been waiting for the government of Rajasthan to present its budget this month. And what could be in the Rajasthan government's budget

that could be of interest to Gio? I'll tell you. In its last budget session, the Rajasthan government had promised free mobile phones including voice calls and 20 GB worth of monthly data to more than

13 million women across the state. The project is worth 12,000 crore rupees. When the bidding for the project began, Gio emerged as the lowest bidder and managed to get 60% of the overall contract value. Now, we know that such schemes are usually announced with the elections in mind. Rajasthan goes to polls later this year.

The supply of devices for this project was to start by mid-December last year. But more than a month later now, there is still no sign of it. Some reports say that the government might shelve the scheme. Its fate is up in the air. But if it does come through, what would the Rajasthan government's free smartphones project mean for Reliance Geo? Welcome to Daybreak, a new podcast from the Ken. I'm your host, Nikda Sharma, and I don't chase the news cycle.

Instead, thrice a week on Monday's, Wednesdays and. On Fridays, I will come to you with one business story that is worth understanding and worth your time. Today is Wednesday the 1st of February. The Rajasthan Legislative Assembly election is scheduled to be held in or before December this year. So last year, in the 2022-2020 to 2023 budget, Congress Chief Minister Ashok Gayalot announced a scheme as a part of his Mukhi Mantri Digital Seva Yojana.

The scheme promises free smartphones with voice-comers. call and data to women across the state. If rolled out, this program will help the Congress-led government and the telcos to reach one-sixth of the state's population. Rajasthan, by the way, is the seventh most popular state in the country. So even one-sixth of its population makes up for a large number of people. The smartphone under the scheme will come pre-installed with a bunch of the state's e-governance applications. It will also have a folder dedicated to the department of IT and communications with downloadable government to citizen apps. According to the government's tender for the project,

only telecom companies were asked to bid for the contract. Now, this deal, if it comes through, will be a much-needed win for Gio. Because Gio's revenue market share in Rajasthan saw a dip in the third quarter of last year compared to the same quarter in 2021. In the same period, Bharti Airtil's share increased.

In the recently released results for the last quarter of 2022, Gio reported poor growth in average revenue per user. It was less than 1%. Meanwhile, the churn rate, which is a number of subscribers leaving the network, rose to 2.2%. The Ken found that the per unit price for the device quoted by Reliance Gio and its smartphone manufacturer partner to the government of Rajasthan is $6,600. Multiply that with what the state government has said.

The scheme is supposed to reach 13 million women across the state. That is a lot of money and a large number of potential customers in a state where GO seems to be lagging behind. Plus, the Rajasthan government has also promised free connectivity with the smartphone, free voice calling and 20GB worth of monthly data. Officials say that the monthly data cost has been pegged at roughly 80 rupees. That means over a span of three years, which is the time period in which the government will pay the telecom company, the data fee would add up to 3,800 crore rupees in revenue. This contract could help geo lock in millions of customers. And considering its sliding revenue market share and the need to prioritize customer retention in Rajasthan,

it is more of a necessity than just a big opportunity. Coming up next, I tell you about how Gio won 60% of the bid. The request for proposal for the project was floated in May 22 and the tendering was held in July and August. The government wanted private companies to fund this project so that they would bear the upfront cost. And that is how the proposal mandated telecom companies with billions of dollars in revenue to bid for the project. The telcos in turn had to partner with smartphone manufacturers. By mid-2020, the government started getting bids from Gio as well as other telecom companies such as Bharti Airti Airtel and the state-owned BSNL.

Geo found Samsung and Nokia to partner with while Bharty Airtle decided to go with Samsung. Cash-strapped Vodafone on the other hand decided not to participate. As for BSNL, we still don't know if it has a smartphone manufacturer partner. The thing to note here is that an upgraded version of the Geophone Next was also a part of Geo's proposal to the Rajasthan government. For context, according to industry executives that my colleague Pratab Vikram Singh spoke to, when GeoFone Next was launched, it was expected to be the next wave of geo devices. It was supposed to add millions to the geo network.

But that did not really happen. It didn't see much success. Now, coming back to the government's tender, Reliance's geoseless, emerged as the lowest bidder and that is how the company managed to get 60% of the overall contract value 12,000 crore rupees. Bharti Airtel, Gio's closest competitor, got the remaining 40%. According to some reports in November last year, the supply of devices was to start by mid-December 2022. But so far there is still no sign of the scheme's progress. Some recent reports say that the project has been shelved.

A top industry executive told Pratap, and I'm quoting, the state government expected the cost to be less than the lowest bid. It didn't make provision to the tune of 12,000 crore rupees. End quote. When Pratab spoke to an official close to the IT consulting firm called Rajcomp Info Services that is responsible for implementing the scheme, they told him that the government would clarify the project's status in the budget document on the 8th of February.

Until then, things are still up in the air for Alliance geo. Government's announcing freebies ahead of elections is not a new phenomenon, especially here in India. In 2018, the previous Rajasthan government led by the BJP had also rolled out a similar scheme to help low-income families buy smartphones. Ironically, though, it lost the elections that year. For telecom companies, though, the motivation behind making the most of this trend of of government freebies lies in the fear of losing revenue. As the 2023 polls approach, the stakes are once again quite high.

Daybreak is produced from the newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps, and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host and today's episode was edited by my colleague Rajiv Sien.