Recovery eludes telecom firms as Reliance Jio returns to tariff war
New Delhi: A recovery in India’s telecom industry, which showed some pricing discipline in the second half of 2017 after a bruising year-long tariff war triggered by the entry of Reliance Jio Infocomm Ltd, could still be some way off. The company owned by Mukesh Ambani has returned to its earlier aggression in pricing to grab market share.
While consumers would continue to enjoy cheap tariffs, older telecom operators, which are in the midst of a consolidation drive, would continue to see pressure on revenues and profitability.
“Incumbents’ move from a selective market share defence mode to a more aggressive one was met with an expression of displeasure from Jio in the form of fresh price cuts,” Kotak Institutional Equities said in a report dated 20 January.
“RIL (Reliance Industries Ltd, parent of Reliance Jio), in its third quarter analyst meet, was quite explicit about the thought process behind the price cut move—it will not let incumbents get close on the price-value equation and any such effort by the incumbents would be met with similar cuts,” the brokerage said.
Reliance Jio, which offered free services for the first seven months of operations and started charging for its services in April, effected tariff hikes in July and October 2017, which led many to believe that the worst was over for the industry.
Earlier this month, Reliance Jio, however, enhanced the validity by two weeks of its flagship Rs399 pack with 20% more data effective 9 January. It also enhanced all 1GB packs with 50% more data or with a Rs50 discount.
“On our tariffs being reduced, people have missed the fact that it was in response to some of our competitors reducing prices. This has been very consistent with what we said — if someone matched our prices we will give 20% more value,” Srikanth Venkatachari, joint chief financial officer at RIL, told reporters on Friday after the company announced its financial results for the December quarter.
RIL chairman Mukesh Ambani had said in February last year that Reliance Jio would monitor all publicly announced plans from all operators and not only match the highest selling tariffs but also provide 20% more data in each of these plans.
In the fight for market share, bigger rival Bharti Airtel too has clearly outlined its strategy. “The company will aim to get a disproportionate share of the 4G SIM slots in the market,” Bharti Airtel CEO Gopal Vittal said in a post-earnings call with analysts on Friday. Pricing continues to remain depressed in the fight for market share driven by the new entrant, Vittal added.
Bharti Airtel’s quarterly net profit plunged 39% to Rs306 crore in the three months ended 31 December from Rs504 crore in the year earlier as it was hit hard by the telecom regulator’s decision to slash interconnection usage charges (IUC) levied by mobile networks handling incoming calls from rival networks. Reliance Jio, on the other hand, benefited from the IUC cut, and reported a profit of Rs504 crore in the December quarter, a first for the company, from a loss of Rs271 crore in the preceding quarter.
Reliance Jio added a net 21.5 million subscribers in the three months ended December, compared with 15.3 million users in the September quarter. At the end of December, Reliance Jio had a total of 160.1 million subscribers.
“India’s market is price sensitive and has a low percentage of users who consume data. Given that operators would want to expand that market it is impossible to do that without more competitive pricing. Cut-throat pricing is here to stay and it will continue to be tough going for the industry. A serious revival of the sector could be a little distant,” said Mahesh Uppal, director at communications consulting firm ComFirst India.
According to data from the Telecom Regulatory Authority of India (Trai), as of 30 September, Bharti Airtel had 23.84% of the wireless subscriber base followed by Vodafone India Ltd with 17.53% and Idea Cellular Ltd at 16.07%. Reliance Jio’s market share is 11.72%.
If data prices remain at these levels, this would also mean that operators would have to look at other ways to augment their revenue streams.
“The current prices are the new normal. Operators can’t just rely on selling bytes and have to now look for more revenue sources such as content, Internet of Things, etc,” Cellular Operators Association of India director general Rajan S. Mathews said, adding that “we don’t see another round of price war because tariffs are already at rock-bottom. The revival of the sector is at least 3-4 quarters away,” Mathews added.