Jio, Airtel’s 5G expansion could hurt Vodafone Idea, BoFA

The expanding fifth-generation (5G) network coverage of Reliance Jio and Bharti Airtel may accelerate the churn of high-end postpaid subscribers from Vodafone Idea, according to brokerage firm BoFA Securities. Both Bharti and Jio have gained market share at the expense of Vodafone Idea in recent years, and the loss of market share is expected to increase as the differential in 5G coverage becomes clear. The high-end postpaid users of Vodafone Idea could be specifically targeted by its competitors as 5G coverage becomes a factor in customer migration.

Reliance Industries Limited (RIL) has stated that they are ahead of the committed timeline for their 5G deployment. More than 90% of census towns are already covered by Jio’s 5G signal, with around 115,000 5G sites deployed in India. Jio aims to have a pan-India rollout by December 2023 with their $25 billion capital expenditure commitment.

According to BoFA, Jio’s capital expenditure commitment includes the purchase of 5G airwaves, the upgrade of the 4G network to 5G, and investment in fixed wireless access (FWA) or JioFiber. The brokerage estimates that if Jio deploys MIMO on its 200,000 5G sites, it would cost around $4 billion. Jio also plans to invest in fiber, larger towers, and in-building coverage.

FWA is a focus area for Jio in terms of gaining subscribers. The rollout of Jio AirFiber is targeted at tier 2/3 cities where there is demand for quality fixed broadband service. BoFA expects the incremental EBITDA margins on FWA to be 60%+ as it leverages the existing network. The addressable market for fixed broadband and FWA in India is estimated to be around 320 million households, with around 20-30 million households eventually being catered by fixed broadband and the next 50 million households using FWA.

However, uncertainty remains regarding the affordability of FWA for households. The ability of 40-50 million households to pay for home broadband in addition to their mobile spends is unknown. Jio sees the potential for users to pay for FWA in tier 3/4 cities, and the price of the consumer premises equipment (CPE) is a determining factor. Airtel believes BWA CPEs are priced high at $170-$180, while Jio aims to bring the price down to below $120 in partnership with Qualcomm and potentially subsidize the device further. ISP