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Jio’s new post paid plans won’t start ‘tariff war’: Goldman

The pessimism around Reliance Jio’s latest postpaid offer impacting rivals Bharti Airtel and Vodafone Idea (Vi) is unwarranted as it does not signal new “tariff war” between the telcos and does not rule out the possibility of prepaid tariff hikes within this year, brokerage firm Goldman Sachs believes.

Jio, on Monday, launched Rs 399 postpaid bundled offer with OTT subscription, higher than its already existing Rs 199 postpaid plan.

Airtel and Vi’s stock closed down 8% and 10% respectively on BSE on Wednesday while the benchmark index remained flat, as inventors feared a key impact on their postpaid revenues and taking it as a signal that prepaid tariffs, critical for both telcos, might not go up.

Thursday, in late trade, Airtel shares were trading 3.9% at Rs417.10 while Vi’s was 1% down at Rs9.13, on the BSE.

“Jio has not cut the price of its existing Rs199 plan, but has introduced new plans (at 2x the tariffs of its existing plan), and thus we do not see this as the start of a new “tariff war”, the brokerage said in a report.

Goldman also believes Jio needs a prepaid tariff hike more than its peers.

“Almost the entire revenue base of Jio is prepaid, with 80% of that coming from smartphones (50% for Bharti and Vodafone Idea). Thus, any tariff cut in this segment, or delay in tariff increase, would impact Jio’s revenue/EBITDA the most,” it said.

Bharti’s 15 million postpaid user base, as of June 2020, has been resilient despite a cheaper offering from Jio, evidenced from the fact that Bharti’s postpaid churn over the last two years has just 0.5 million.

Half of Bharti’s user base comes from the corporate segment where tariffs are offered at a negotiated rate, and OTT subscriptions are not likely a differentiating factor, it said.

“For the retail segment, if all customers were offered bundled OTT subscription, we see a 3% negative impact on Bharti’s FY22 consolidated EBITDA (earnings before interest tax depreciation and amortization),” Goldman said.

Even for Vi, whose overall subscriber base has declined 34% in two years, its postpaid base has only fallen by 10%. Vi had 23 million postpaid users in June-20.

“While we do expect continued erosion in Vodafone Idea’s market share, despite a weaker network vs peers, the company has largely held on to its customer base so far, reinforcing our view that this segment has very high customer stickiness,” the brokerage said.

Goldman believes OTT subscriptions in postpaid plans might be helpful in retaining users or reducing churn, but it is not a key differentiator for adding new customers. News07trends

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