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Tariff hikes to improve sector profitability, MOSFL

RJio was the first among its peers to initiate an average price hike of ~19%, and it was followed by Bharti and VIL (with hikes of ~15 and ~16%, respectively). All the players have announced the tariff increase for both prepaid and postpaid plans. However, RJio has not raised the tariff for JioBharat/JioPhone users.

Bharti and VIL have taken modest price hikes of ~11% each in the entry-level plans to restrict subscriber churn in 2G and 17-18% in the popular plans (vs. RJio’s ~19% hike). Still, RJio remains the affordable plan provider with the highest spectrum that supports its offerings of quality services at the lowest price.

The price hikes remain in line with expectations, and will increase the exit ARPU of FY25 by 17%/20%/20% to INR213/INR251/INR175 for RJio/Bharti/VIL supported by the organic ARPU growth. The ARPU increase will be spread out in 2-3 quarters and may translate into a 26%/24%/26% increase in EBITDA for RJio/Bharti/VIL.

The gap between RJio and Bharti/VIL contracted in value plans/ entry-level plans as Bharti/VIL’s price hikes were lower to protect their 2G subscriber base, which is 25%/40% of their total subscribers. However, the gap in premium/postpaid plans between RJio and Bharti/VIL remains the same.

Overall, a tariff hike after two years is a positive step for the telecom industry, as this will provide a breather for VIL and improve return ratios for Bharti/RJio. However, with the increase in tariff alongwith higher mobile number portability (MNP) at 11-12% of the gross industry subscribers we expect some down trading and SIM consolidation going forward.

After the tariff hikes, we expect the catalysts for the telecom stocks would be subscriber gains, a reduction in churn, 5G adoption and an increase in data customers.

We continue to prefer RJio and Bharti (TP of INR1,680) and we reiterate our Neutral rating on VIL with a TP of INR18.

Bharti/VIL have reduced pricing premium vs. RJio in entry level plans; maintained in premium plans

The average price hikes taken by Bharti stood at ~15%, VIL at ~16%, and RJio at ~19% across both the prepaid and postpaid plans.

Bharti and VIL have taken modest price hikes of ~11% each in the entry-level packs (this could help them retain their 2G customers), while they have raised prices by ~17% in popular plans. RJio took a price hike of ~20% across entry and popular plans.

After the price hikes, the gap between Bharti/VIL and RJio in entry-level plans reduced to ~5% vs. ~15% before the price hikes.

In prepaid, the price gap between Bharti/VIL and RJio remained the same in popular daily plans as compared to the previous scenario (8-10%).

Similar to RJio, Bharti/VIL also took price hikes in the postpaid plan by ~15%, and thus they maintained the price gap with RJio.

The new plans will be effective from 3rd Jul’24.

RJio is also launching: a) JioSafe – the quantum-secure communications app for calling, messaging, file transfer, and more (priced at INR199/month), and b) JioTranslate – an AI-powered multi-lingual communication app for translating voice calls, voice messages, texts, and images (priced at INR99/month).

For report, https://www.communicationstoday.co.in/wp-content/uploads/2024/07/TEL-20240701-MOSL-SU-PG016.pdf

CT Bureau

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