Competition in India’s telecom sector unlikely to reduce soon
Reliance Jio’s continued focus on expanding its subscriber base, via tariff cuts, offers and free Jio Prime membership, may reflect in a weak quarter for Airtel, Vodafone and Idea Cellular
Mumbai: Competition in the telecom industry, which has led to consolidation in the sector, is unlikely to abate in the coming quarters, as Mukesh Ambani-controlled Reliance Jio Infocomm Ltd continues to focus on subscriber acquisition and retention, according to recent reports from top equity research firms.
Jio’s ambition to gain and retain subscribers was evident in its aggressive pricing at the beginning of the year and the firm’s current move to extend Jio Prime benefits for no fee, said a 2 April Morgan Stanley research report on the Indian telecom sector.
Reliance Jio had on 30 March extended membership for the 175 million existing users of the Jio Prime loyalty programme for another year for free. Jio Prime membership costs Rs99 for new members.
Jio Prime membership gives registered Reliance Jio users access to a suite of applications and services for free, including live TV channels, movies and music, higher data benefits as well as lower tariffs.
“Clearly, Reliance Jio’s focus continues to be on subscriber acquisition and retention in the near term,” the Morgan Stanley report said, adding, “Charging prime fee for existing users could have possibly resulted in some subscriber churn for Reliance Jio.”
Morgan Stanley expects a 7% impact on Reliance Jio’s earnings before interest, taxes, depreciation, and amortization (Ebitda) for financial year 2018-19, from extending Prime benefits to its existing subscriber base.
Reliance Jio, which currently has over 175 million customers, doubled its telecom market share to 13.71% as on 31 December 2017, from 6.40% a year ago, regulatory data shows.
A Reliance Jio spokesperson said most of its customers are Jio Prime members and non-Prime members account for a negligible part of the company’s subscriber base.
A report by Citi Research on 1 April said the competitive intensity of the telecom sector is unlikely to abate anytime soon.
“As the industry consolidates owing to smaller telco closures, we expect the top 3 telcos to continue to focus on grabbing subscriber share,” said the Citi Research report on India Telecom.
“While the latest announcement from Jio doesn’t indicate another flare-up on pricing (it is broadly along expected lines), we think a pricing recovery is unlikely in the near term,” it added.
Meanwhile, leading incumbents like Bharti Airtel Ltd and Idea Cellular Ltd/Vodafone India Ltd have continued to match Reliance Jio’s tariffs for its existing 4G (fourth generation) users via segmented offers.
“Jio’s pricing moves in the month of January 2018, impact of international termination rate (ITR) cut effective February 1, 2018, and continued ARPU (average revenue per user) downtrading are likely to reflect in another quarter of sharp sequential revenue decline for the incumbents,” said a Kotak Institutional Equities report on Telecom (India) dated 2 April.
We expect the January-March 2018 quarter to be another weak quarter for the wireless incumbents, the report said, adding that the brokerage expects a 8-9% quarter-on-quarter decline in ARPU for Bharti Airtel and Idea Cellular.
“Jio’s pricing moves in the month of January 2018, even as the incumbents (barring Bharti to some extent) have not responded with headline price cuts, each of them has been forced to cut prices selectively,” the Kotak Institutional Equities report said, adding that the brokerage ARPU forecast for Bharti Airtel and Idea Cellular for Jan-March 2018 quarter stands at Rs115 (down 8.6% on quarter) and Rs104 (down 9% on quarter) respectively.
A JP Morgan report on Reliance Industries Ltd (Jio’s parent company) dated 2 April states Reliance Jio’s investments in content are expected to remain elevated as currently most of the content is third party-owned.
Expect more spending on content, and hence overall capital expenditure for Jio should remain elevated, the report said.
“While Jio continues to add subscribers and the Jio Phone would allow it to gain a larger share of the lower end ARPU market, the focus has now shifted to monetizing the high-end subscriber base beyond the telecom tariffs,” the JP Morgan report said.
“While Jio’s subscriber base has very high data usage, the focus for Jio would now be to shift the data usage towards its content offerings and eventually monetize the content offering,” the report added.
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