Reliance Jio’s chase for half a billion 4G customers signals continued pricing onslaught from the Mukesh Ambani-led telco and rules out any early hike in telecom tariffs, which could further dent financials of struggling older carriers,
, analysts said.
“We don’t see telecom tariffs improving anytime soon with
emphasising its aspiration for 500 million 4G subscribers, which is a negative for Vodafone Idea’s share price and will also limit any further upsides in Bharti
,” Rajiv Sharma, co-research head at SBICap Securities, told ET.
Vodafone Idea shares plunged 6.4% to close at Rs 5.02 on Tuesday while Airtel shares fell nearly 7% in intra-day trade before closing 5.3% lower at Rs 351.65 on BSE. By contrast, shares of RIL—Jio’s parent—closed nearly 10% higher at Rs 1,275 on the exchange.
The spectre of continuing price wars runs counters to the view of a section of industry experts who recently said the turmoil in the sector is easing amid relative pricing stability over the past four quarters, and that pricing power could return soon.
Jio’s pricing aggression since its entry some three years ago had compelled older rivals to match rates to retain customers, galvanising consumption of voice and data services. Subscribers benefited but incumbents operators got hurt. Smaller carriers exited and the sector consolidated down to three large private telcos—Voda Idea, Airtel and Jio— making it an ideal market situation for pricing power to return over time.
Jefferies and JP Morgan though don’t expect Jio to relent on tariffs until it is close to its stated 4G customers target. Kotak Institutional Equities expects Jio’s user base to grow to 497 million (from 340 million now) by FY22, propelled by its average 10 million monthly adds run rate. It also estimates India’s largest telco by subscribers and revenue to command a monthly average revenue per user (ARPU) of Rs 150 by FY22 from the current level of Rs 122.
Bank of America-Merrill Lynch expects Vodafone Idea to be the weakest among the top 3 telcos, with Jio’s parent, “Reliance Industries potentially getting money from the Aramco deal”. RIL chairman Mukesh Ambani had announced at the company 42nd AGM that Saudi Arabia’s Aramco is buying a 20% stake in RIL’s oil-to-chemicals unit at an enterprise valuation of $75 billion.
VIL reported a net loss of Rs 4,874 crore and its revenue fell below Jio’s for the first time in the June quarter. Airtel too had reported a consolidated net loss of Rs 2,866 crore in the fiscal first quarter—its first in 14 years—though its Indian mobile business showed signs of turning around. Jio, by contrast, had reported its seventh straight profitable quarter, on the back of strong user adds.
Analysts said Jio’s decision to launch the country’s fastest home broadband service next month, and combine it with free high-definition TV for users opting for its yearly plan, could drive Bharti Airtel to fast-track a potential merger with Dish TV India, to hold on to its DTH customer user base.
Sharma of SBICap Securities said Bharti Airtel’s revenue from home broadband and DTH, which is currently 8% of its total revenues and 10% of total Ebitda, “is likely to see pressure, with more subscriber churn likely in the DTH business, which is why, the possibility of a merger between Airtel and Dish TV has increased to de-risk the former’s DTH user base”.
Disagreement over valuations have reportedly stalled a potential Dish-Airtel transaction, even though talks between Dish TV India’s owners and the Airtel-Warburg Pincus-Singtel combine had started in March-April this year.
Analysts though said Jio’s fibre-based home broadband pricing is not disruptive, and could actually help expand the market for all players, including Airtel.
Jio will launch home broadband services on September 5, with plans ranging between Rs 700 and Rs 10,000 a month, which according to analysts, signals rational pricing.
Nitin Soni, director (corporates) at global ratings agency Fitch, said Jio’s base home broadband price-point of Rs 700 a month is comparable with Airtel’s home broadband ARPU of Rs 825, and would “expand the market and benefit the Sunil Mittal-led telco once Jio rolls out its services”.