The fortunes of telecom industry may change if new player Reliance Jio raise tariffs this fiscal. But experts are divided on whether Reliance Jio will be willing to take such a step before it reaches its target subscriber base of 400 million.
“Tariff increase by Reliance Jio in FY20 more likely than before, although RJio reiterated that its focus was on volume and consumption-related stats – this has positive implications for incumbent peers,” JP Morgan said in an analyst report.
RJio is likely to spend on the last mile in working towards its 50 million wired broadband (FTTH) subscribers target, which is why it is unlikely that its capital expenditure will dramatically decline with the demerger of its tower/fibre assets….the likelihood of RJio increasing prices is higher today than it was 6-9 months ago, the report said.
It will be a big positive for incumbents if the prices are raised, enabling them to recover their cost in some way. But incumbents are holding on and waiting for RJio to open up its cards, analysts said.
Another report by Edelweiss Research also said price hikes are imminent as RJio approaches its 400 million subscriber goalpost. A pricing recovery is expected from H2FY20, propelling industry average revenue per user (Arpu) to pre-RJio level of Rs 156 by end FY22 (Rs 98 in the third quarter of FY19), in turn catapulting industry size 50%. Also, mobile broadband subscriber penetration is close to reaching 65%, which provides opportunity to raise tariffs.
The company has over 300 million subscribers since its launch of its 4G services in late 2016. Initially, the services were free for about six months, subsequently which the company kept a minimum tariff offering free voice calls and dirt cheap data tariffs. However, some analysts feel there is no need for RJio to raise tariffs as it is still adding a significant number of users every month. For March, the company added 9.5 million subscribers
JM Financial analysts say RJio continues to capture a dominant 50-60% share of incremental 4G additions (including Jio Phones). “We see no prospects of a tariff hike in FY20, unless Jio’s net additions come down to 2-3 million per month.”
Reliance Jio on Thursday posted a 65% jump in its net profit at Rs 840 crore for the quarter ended March this year at a time when other private players are posting losses and struggling to sustain amidst hyper competition.
The aggressive pricing unleashed by RJio with its entry has impacted the financials of incumbents. There has been hardly any price hike since then, leaving no scope for telcos to recover their investments. RJio also forced consolidation in the sector, where only three private players have left – RJio, Airtel, Vodafone Idea. The telecom PSUs BSNL and MTNL are also struggling to sustain themselves in a highly competitive market.
However, Arpu, a key matrix for profitability, for Reliance stood at Rs 126.2 for the March quarter, a decline from Rs 130 in the previous quarter. The Arpu has been declining for last five quarters, which might build a case for the company to raise tariffs as well, analysts add.
The entry of Reliance Jio has opened up 4G — mainly for data for mobile users like never before. In 2018, Jio captured 60% share of new 4G subs, and accounted for 65% of industry 4G subscribers as of end December last year. It carried 70% of 4G data traffic in 2018 and 61% of overall data traffic.
Biting the bullet
- Some analysts feel there is no need for RJio to raise tariffs as it is still adding a significant number of users every month
- JM Financial analysts see no prospects of a tariff hike in FY20, unless Jio’s net additions come down to 2-3 million per month―DNA India