Data Tariffs To See Major Correction Due To Disruptive Launch Of Reliance Jio
Data tariffs are bound to see a major correction due to the disruptive launch of Reliance Jio Infocomm (RJio), while the benefits from higher data volumes as well as subscriber growth will be back-ended, says India Ratings and Research (Ind-Ra). The agency expects the launch of RJio to intensify competition which will squeeze the market share, EBITDA margins and credit metrics of incumbents. Other large telecom companies (telcos: Bharti Airtel Ltd., Vodafone India Ltd. and Idea Cellular Ltd.) have already undertaken pre-emptive price cuts by offering higher data volumes for the same price as their earlier packages to retain their customers.
R Jio, which is officially launching services from 5 September 2016, will be offering data services free for four months, after which it will offer 10 tariff plans starting at Rs 19 a day for occasional users, Rs 149 a month for low data users and Rs 4,999 a month for heavy data users. The company will also offer free voice calling and SMS services bundled with the data tariff, which could hurt the voice tariffs of existing operators as well as they would need to come up with similar offers in a bid to protect their market share.
Ind-Ra believes that the launch of RJio will accelerate 4G adoption in India, backed by its attractive tariffs, low-cost handset pricing, perceived superior quality of services driven by its huge investment in network.
RJio may look to disrupt some of the prominent geographies of existing operators, leading to a re-distribution of the market share which is concentrated among the top three operators, in FY17. The operators’ debt profile will deteriorate in FY17 as the agency expects them to incur high capex on network expansion and acquisition of additional spectrum to compete with RJio.
Ind-Ra had highlighted in the report ‘RJio to Up the Ante for Telecom Operators in FY17’ that data revenues will remain stagnant on a 30-40 percent decline in data realisations/megabyte (MB) in FY17 driven by RJio’s launch, while support from data consumption growth to data ARPU will be gradual. Ind-Ra expects RJio to not just contend for market share out of the existing pie of subscribers which are being serviced by incumbent operators but also lead to acceleration in data subscriber growth. RJio has incurred aggregate pre-launch capex of around Rs 1.5 trillion signifying the magnitude of its potential reach and capabilities.
Ind-Ra highlighted in the report ‘Market Wire: Telcos to Exercise Selective Bidding; Spectrum Acquisition Strategy to Revolve Around 4G’ that the top telcos already have moderate-to-high leverage levels, which will weigh on their ability to reduce rates at a time when they are expected to invest in the spectrum auctions later in October 2016. Idea reported a higher net debt/EBITDA ratio in FY16 at 3.25x (FY15: 1.31x), which is the peak financial leverage of the last five years. Bharti’s financial leverage stood at 2.4x in FY16, which is expected to go up in FY17 with the increase in capex and margin moderation due to the intensifying competition in the data segment. Reliance Communications Ltd (RCom) on the other hand is highly leveraged (net debt/EBITDA: 5.6x in FY16).
Bharti has the largest spectrum holding at present, of the total 770MHz, across bands (900MHz, 1,800MHz, 2,100MHz and 2,300MHz); followed by Reliance Jio Infocomm Ltd (RJio), which holds 596MHz spectrum across 800MHz, 1,800MHz, and 2,300MHz bands and then followed by Vodafone (302MHz) and Idea (271MHz).
(India Ratings and Research a wholly owned subsidiary of Fitch Group is a SEBI and RBI accredited credit rating agency operating in the Indian credit market.)