Mumbai: Domestic rating agency Icra on Wednesday said extension of free services by Reliance Jio for three more months will aggravate pains for existing operators hit by demonetisation and lead to a revenue dip of up to 7% in next two quarters.
“At a time when the industry is already facing pressures on the operating metrics, owing to heightened competition, the extension of free services by Reliance Jio is expected to further push down the realisations in both the voice and data segments,” its associate head for corporate ratings Harsh Jagnani said.
“The impact is expected to be exacerbated by demonetisation of the higher denomination currency, which can lead to revenue loss of the telcos, especially in the pre-paid segment,” he added.
Stating that the sector is already reeling under a Rs4.25 trillion debt, it said Reliance Jio’s extension has “added to the industry’s woes” and coupled with the demonetisation exercise, will lead to a revenue dip of 5-7%.
Mukesh Ambani-led Reliance Jio, launched in September, extended the free services till March 2017, after announcing not to charge voice telephony at all (which is the revenue mainstay for entrenched operators) and depend only on the data for revenues.
The government’s surprise move to scrap Rs500 and Rs1,000 banknotes on 8 November, has severely impacted consumption and led to a rash of growth estimate cuts by economists.
Icra said Reliance Jio’s aim is to target high average revenue per user (ARPU) subscribers and feels that the industry would migrate from the revenue per minute (RPM) or the average revenue per megabyte (ARMB) approach to ARPU-based approach.
The new entrant will also be helped by other factors like a big bang launch, a fresh network which will give better service and better device ecosystem.