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The scramble for post-paid subscribers is heating up

At a time when telecom operators are not increasing headline tariffs, Reliance Jio is following rival Bharti Airtel’s strategy of raising entry-level tariffs and encouraging prepaid users to move to postpaid services. Through the move, both the telcos are trying to improve their average revenue per user (ARPU) to recover their outlay in rolling out 5G network.

Jio is going to phase out its entry-level postpaid tariff plan of `199 and replace it with a new, standalone plan of `299 – a hike of 50%. Bharti Airtel has earlier increased its entry-level plan for prepaid users by 57% to `155 across all the 22 circles.

Sources said that Bharti Airtel is also likely to come out with some new plans to encourage more and more prepaid users to move to postpaid plans.

Analysts said that when a prepaid customer moves to postpaid, the ARPU almost doubles.

A close look at the new postpaid plans of Jio, which would come into effect from March 22, clearly shows its efforts to migrate users from prepaid to postpaid to enhance its ARPU.

For instance, Jio, which has the lowest share of postpaid users at 1-1.5% of the total user base, has announced a family plan of `399 with three add-on SIM card for `99 each. If a family of four subscribes to this plan, the total monthly outflow would be `696. The charge per individual thus comes to `174.

Currently, its most popular individual, prepaid plan is of `666, which is valid for 84 days. For a family of four, which uses Jio connections, it makes sense to move to the `399 postpaid connection as the total outflow will be less. This was not possible till now as Jio’s existing postpaid family plan is of `599 with only one add-on SIM.

Jio’s `399 plan is at a 30% discount to peers. However, it has come with another, higher family plan of `699 plus three add-on SIM card for `99 each, which works out to `996 – almost at par with competitors Bharti and Vodafone Idea, whose similar family plans are for `999.

“The current move by Jio shows its focus on both converting existing prepaid into postpaid users as well as to drive market share gains in this segment. The new entry-level family plan of Jio Plus is cheaper but not necessarily disruptive, in our view,” said Morgan Stanley in a report. “We believe this move would lower the barrier for users to move to postpaid as the total monthly outgo compared to regular family plan will come down,” Morgan Stanley said.

The postpaid market accounts for 7.5% of India’s overall subscriber and 10% of the telecom sector’s wireless revenues, according to industry estimates. Around 50-60% of these subscribers are enterprise customers and 34% are situated in the three metros, and another 36% in urban centric A-circles. Currently, Vodafone Idea is understood to have the highest market share in the postpaid segment, followed by Bharti Airtel.

“Jio has so far been unable to replicate its prepaid success in the postpaid market, as subscribers to the latter are typically less price sensitive, incumbents match the offer on porting requests, and users do not have flexibility to choose the telco in the case of a corporate postpaid connection,” said Kotak Institutional Equities. “However, we believe Jio is likely to have a better shot at attracting postpaid subscribers this time, especially from Vodafone Idea (5G rollout is unlikely in the medium term),” Kotak Institutional Equities said.

According to analysts, Jio is not expected to initiate any tariff war in the prepaid segment as despite being the market leader, the company needs around 12% hike compared to 4% hike by peers to break-even on its 5G spectrum expenditure. Financial Express

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