Reliance Jio’s entry: Aircel, R-Com, Tata DoCoMo endgame feared
Mumbai: Reliance Jio’s ambitious data tariffs announced at the company’s 42nd annual general meeting on Thursday may not stir the market in the near term, but could well push incumbents Bharti Airtel and Idea to increase their capital expenditures and impact the spectrum auction on 1 October, say analyst.
Jio’s entry could also mean end of the road for marginal players like Aircel, R-Com, Tata DoCoMo and Telenor.
Bank of Americal Merill Lynch in a report on Thursday said, “With Jio further looking to improve its network we expect the top three telcos to increase in their investments. Operators were not as forthcoming in mentioning that capex will rise but maintained the view that it will remain at recent high levels for few years.”
RIL’s scrip was trading at Rs.1016.95, down 1.19%, at 10 am on the BSE on Friday. While Bharti Airtel was down 0.13% at Rs.310.30, Idea Cellular was down 2.99% at Rs.81.20.
Reliance Jio announced monthly tariff plans based on data consumption. Over and above the tariff plan, was the announcement of 25% discount for students.
The starting tariff is Rs.149 per month but these are for light data users with voice free; the effective main tariff starts at Rs.499 per month with 4GB of 4G data, and the next plan is at Rs.999 per month with 10GB data.
“For the incumbents, we expect some adverse impact in the lower tier segment, as the lowest Rs.149 offer will appeal to the voice only consumers who will be able to make free voice calls on Jio’s network. In our view, this is a surprise as the market was not expecting Jio to aggressively target the low end market,” added Bank of America Merill Lynch (BoAML).
In a separate report, UBS said Jio’s entry could also expand mobile data revenue pie for telcos. It, however, does not expect the high-end customers to switch to RJio overnight by abandoning their existing operator.
“In the medium term, RJio will ensure that marginal players such as Aircel, R-Com, Tata DoCoMo, Telenor exit and data market expands significantly. Bharti Infratel would also emerge as a key beneficiary as data demand would lead to more towers and tenancies,” said UBS.
In its report dated 27 April 2016, UBS had said that it expects RJio to co-exist with the market leaders and also expand the size of the market significantly, which could benefit Bharti Airtel (Airtel) and Idea Cellular (Idea).
“If data demand accelerates, we could see positive delta to revenues, margins and returns, which could lead to a re-rating for Airtel and Idea. Bharti Infratel (Infratel) also benefits in a data-boom scenario as the company is well positioned as the tower provider of choice to the market leaders,” UBS had added.
The upcoming spectrum auction is another area which could see an impact. “The spectrum auction scheduled to start by 1 October could positively surprise in terms of outcome as given the levered balance sheets and slower data growth we do not expect telcos to aggressively bid in the auction.”
“We expect more interest in 1800 and 2100 bands (as 2100 could also be used for 4G) and expect limited interest in 2600/700 giving its pricing and ecosystem disadvantage. Selective interest in 700 band is not ruled out in category B/Cc circles where prices are low. We estimate overall spending to be around $ 4-4.5 billion and expect Bharti/Idea to spend $400-700 million, respectively,” said BoAML.