"Our analysis suggests that RJio's like-on-like (adjusted for depreciation and capital costs associated with owned towers) network costs for a 200,000-site network could be in the vicinity of Rs 125 billion per annum. R-Jio's reported network opex for Q2FY18 stood at Rs 13.7 billion (Rs 54.9 bn annualised), we note," Kotak said.
The report further added the Rs 125 billion annualised network operational expenditure (opex) adjusts for the likely network opex capitalisation in Q2FY18, roll out of another 70,000-odd sites to take the total site count to 200,000 as guided by the company and depreciation and amortisation and capital costs associated with the company's own towers.
"We have made this adjustment to make Jio's network costs comparable with the incumbents whose networks run predominantly on leased towers," Kotak added.
In contrast, Bharti Airtel's annualised network opex stood at roughly Rs 132 billion, as per Kotak estimates and these costs supported a network of an average of 162,667 (2G) sites with 123,181 of these having one or more 3G and/or 4G base stations.
Similarly, Kotak said Idea and Vodafone are in a tougher spot on this aspect unless the merge co-delivers network cost savings, much in excess of what the overall merger cost synergy guidance implies.
Idea's annualised network opex stood at Rs 101 billion, for a network of 131,149 2G sites and 125,536 (3G/4G) base stations. Vodafone's network opex was higher at around Rs 110 billion for a similar total network presence as Idea's.
"Combined network cost of Rs 211 billion annualised needs to go down materially, by much more than the guided synergy benefit, for the combined entity to stay competitive, in our view," the report added.