Jio’s Q4 revenue, Arpu may fall; subscriber addition saw a pickup

Reliance Jio Infocomm Ltd is expected to report a sequential decline in revenue for the March quarter, with key metrics such as average revenue per user (Arpu) likely to fall as much as Rs12-14, as operators scrapped interconnect usage charge (IUC), which contributes 7-8% in revenues across the industry, from 1 January.

The Mukesh Ambani-led telecom operator had clocked an Arpu of Rs151 during October-December, up from Rs145 a quarter ago. Arpu is the total revenue of the operator divided by the number of users or connections on its network.

“Arpu should see about 8% quarter-on-quarter moderation as IUC fell to zero from January 2021 (from six paise per minute) for all operators, impacting Jio’s Arpu by Rs12-14, and because of lower number of days during the quarter. This, however, will be partly offset by an uptick due to customer upgrades to high-value recharges,” Morgan Stanley said in a report.

Net customer addition, which has slowed down in the past few quarters, is expected to pick up marginally to 7-8 million during the March quarter as the company offered cheaper plans under JioPhone, effective 1 March, said analysts.

Reliance Jio’s net subscriber addition stood at 21 million in the first nine months of FY21, a sharp decline from an average of 100 million per annum in the first four years of the operator’s launch in September 2016, ICICI Securities said in a report, adding that, “this looks considerably weak”.

While the new JioPhone plans, introduced in February, show the company’s intent and focus on arresting the slowdown in net customer additions, analysts say, it would come at the cost of lower Arpu, ruling out the possibility of any tariff hike in the near future and hurting earnings growth.

“With no government/regulatory support likely, combined with the second covid-19 wave, triggering fresh restrictions, this should preclude imminent tariff hikes, posing a downside consensus earnings for the year, even as the more medium-term view of tariffs heading higher remains unchanged,” Citi said in a report.

According to analysts, Reliance Jio will need a tariff hike to sustain its earnings growth in the coming quarters and bear other operational costs such as network capacity expansion to improve service quality and acquisition of spectrum.

In the two-day 4G spectrum auction concluded on 2 March, Reliance Jio emerged as the top bidder, acquiring airwaves worth Rs57,122.65. Bharti Airtel purchased spectrum worth Rs18,698.75 crore, while Vodafone Idea Ltd’s participation was limited. It placed bids worth Rs1,993.40, largely for spectrum renewal.

Recently, Airtel sold airwaves in the 800MHz band to Reliance Jio for Rs1,037.6 crore in the first such deal between the two telcos. Jio will also absorb future liabilities of Rs459 crore relating to the spectrum. The deal will benefit both.

“Jio has reached a powerful and dominant position in 4G subscribers and the slowdown in growth is due to high base. Jio is also creating a market for 4G among low-Arpu 2G users through JioPhone, which is a gradual process. Jio would need tariff hike to sustain its earnings growth and offset rise in network operating costs due to payment to InvITs (infrastructure investment trust), and rise in costs on account of recent spectrum investment,” said ICICI Securities.

Jio’s earnings before interest, tax, depreciation and amortization (Ebitda) is expected to rise 2% sequentially and 34% year-on-year as lack of IUC revenue does not have material impact on operating performance. The benefits of marginal pick up in subscriber addition during the March quarter will also boost Ebitda, said analysts at Morgan Stanley. Livemint