Reliance Jio’s tariff hike suggests worst may be over for telcos
While the December quarter is expected to be the worst for telcos in years, it may end up being the nadir as far as profitability goes
Reliance Jio Infocomm Ltd has hiked tariffs for its flagship scheme by about 15%, lower than the 26% and 36% increase on the previous two occasions. Not that incumbents will be complaining. They have been reeling under the triple whammy posed by Jio’s cut-throat competition, the impact of goods and services tax, or GST, and a 57% cut in interconnection usage charges (IUC).
In fact, when the Telecom Regulatory Authority of India, or Trai, had announced the cut in IUC last month, one worry among some investors was that Jio may use the resultant savings—Jio ran an IUC bill of more than Rs2,100 crore in the September quarter—to cut tariffs. In this backdrop, Jio’s tariff hike comes as a relief for incumbents, as it will help increase revenues and limit losses.
So while the December quarter is expected to be the worst for telcos in years, it may end up being the nadir as far as profitability goes.
Jio’s slow but steady tariff increases suggest things are likely to improve from hereon on the profitability front.
Of course, it’s another matter whether telcos—the ones that survive—will make a respectable return on their investment.
From Jio’s perspective, the move sends the signal to customers that subsidies won’t last forever. However, the hike might not end up adding substantially to revenues. Jio had already indicated tariffs would be hiked, effective 19 October, and had allowed customers to get locked-in at old tariffs for a three-month cycle, a week before the new tariffs were announced.
In addition, it also provided eight discount vouchers worth Rs50 each to customers who recharged between 12 and 18 October. These vouchers can be used against recharges done in future. Considering that the tariff on the flagship 84-day plan with unlimited voice and a 1GB/day data limit has been hiked by Rs60 to Rs459, the effective increase for those with discount vouchers is negligible.
Having said that, it remains to be seen how many of Jio’s 130 million or so subscribers availed this offer.
On paper, the new tariff for the flagship plan will result in an Arpu (average revenue per user) of Rs141. With the latest tariff increase, the flagship plan now generates Arpu that is about half of what the company had envisaged when it announced tariffs in February this year. As such, it seems like it will be a long journey before the company raises tariffs to optimal levels.
Of course, the gradual approach to tariff hikes has helped the company garner 130 million paying subscribers in quick speed; the company can be expected to continue calibrating its offers so as to ensure subscriber additions continue at a healthy pace, while at the same time remove subsidies from the system as far as possible.