Reliance Jio Infocomm’s modest fiscal Q2 results highlight the issue of revenue growth, especially in the absence of rate hikes as no subscribers have switched from 2G to 4G.

Expense spikes, including network costs, depreciation and amortization, and labor and sales costs, also squeezed the earnings of the telecom market leaders in the July-September quarter. In fact, experts expect Jio’s D&A costs to increase when 5G spectrum amortization begins in the next few quarters.

However, analysts say Jio’s per capita data consumption was strong, continuing to grow by 6% in the last quarter. This underscores consumption-led organic growth and says it could recover as it will need to increase consumption after the 5G launch and support some ARPU premiumization.

“Cost inflation surprised negatively and restricted Jio’s Ebitda margin expansion to 51% (up 90 bps QoQ) network apex was also up 5% sequentially to ₹7,200 crores, especially after the rise in repayment of lease liability by ₹2,000 crores in H1FY23,” ICICI Securities said. “If repayment of lease liability is included, Jio’s network OPEX jumped 30% on-year, Rental cost is treated as a financial lease under Ind-AS norms.”

ICICI Securities estimates Jio’s 5G network capital expenditure at 70,000 million. According to Goldman Sachs, Jio’s revenue market share was almost flat at 43% in the September quarter. However, the brokerage firm expects revenue to increase by 6% QoQ in the third quarter of the current fiscal year on expectations of higher interest rates. IIFL stated that Jio “has no ARPU associated with a 2G to 4G upgrade like the Bharti.”

Jio was a pure 4G service provider until it recently launched 5G betas in five cities. Airtel has now mostly switched to 4G players, but still offers 2G services. Analysts say Jio’s 700MHz 5G spectrum should provide an advantage in deeper indoor coverage and provide a strong case for entering the high ARPU market, but market performance compared to Airtel will be important. That’s because the two carriers plan to focus on 5G rollouts in 5-10 major cities during the last two quarters of the fiscal year.