Reliance Jio’s New Rs 199 Plan To Erode Rivals’ Revenue, Brokerages Say
Billionaire Mukesh Ambani's Reliance Jio Infocomm Ltd. is now going for bigger rivals' high-paying postpaid users as it continues to drive tariffs lower in the world's second-biggest telecom market.
Jio yesterday announced a Rs 199 plan that offers 25 gigabytes of data every month. That’s 50 percent cheaper than comparable plans by rivals and is at a 60 percent discount to their average revenue per user, according to Jefferies.
The new offer focuses more on international calling and roaming packs rather than domestic benefits. Jefferies sees revenues for incumbents getting impacted on the cost factor. Postpaid plans contribute just 7 percent of the top three operators’ total subscribers in India, but more than 20 percent of their revenues.
That made investors edgy. Shares of No. 3 placed Idea Cellular Ltd. tanked as much as 8.4 percent in early trade on the National Stock Exchange. Bharti Airtel Ltd., India's largest telecom operator, dropped 5.8 percent. The S&P BSE Telecom Index slipped 3.8 percent to a near one-month low, making it the worst performer among the 19 sector gauges compiled by the BSE Ltd.
Ambani's latest salvo comes after Jio's pricing successfully lowered prepaid tariffs in the last year and a half. That hurt profits and revenues of rivals, driving consolidation. Reliance Jio’s new plan will now hurt more.
For every 10 percent of postpaid subscribers switching to Jio’s new plan, Bharti Airtel will lose 1 percent of its wireless revenue and 3 percent of its wireless Ebitda, Morgan Stanley said in a note.
The incumbent operators are expected to lower pricing to protect users from switching to Jio.
With the sharp discount launch by Jio we expect incumbents to also respond and thus expect further decline in ARPU for Bharti and Idea. This is likely Jio’s first offer aimed at enterprise market.Piyush Nahar, Equity Analyst, Jefferies
A 10 percent cut in postpaid prices will slash overall average revenue per user by 2 percent, he said.