Higher-than-expected spending by Reliance Industries Ltd in the upcoming telecom spectrum auction will put pressure on its ratings, although the cash outgo on account of Jio launch can be accommodated, Moody’s Investors Service said.
The capex for RIL’s telecom business would be higher than previously estimated and the success of Jio hinges on increased penetration of 4G devices and change in data consumption patterns in India, the credit rating agency said.
On September 5, RIL launched its wireless mobile services through its subsidiary Reliance Jio Infocomm. As part of the promotional package, customers will not be charged for this new service until at least December 2016.
They will not be charged for voice services (except for international calls) even after that and the tariffs applied for data usage will be below those applied by the incumbent service providers.
“These tariff plans are more aggressive than we previously expected and imply higher cash outflows for this subsidiary than we had previously estimated... Higher cash outflow for Jio can just be accommodated in the ratings,” Moody’s said in its report on Mukesh Ambani-led RIL.
RIL’s move to high speed Internet combined with some of the lowest data tariffs in the world should see data consumption rise significantly, it said.
“This growth will also be supported by Jio’s proprietary apps that, among others, provide entertainment and media content. Nonetheless, a change in consumer behaviour at this scale and in such a short period will be challenging,” Moody’s said. It added however that higher-than-expected spending on telecom spectrum auction “would pressure RIL’s ratings.”
