Home / Market / Mark-to-market /  Excitement over rumoured Reliance Jio tariff hike premature

Shares of Bharti Airtel Ltd and Vodafone Idea Ltd jumped 9.3% and 16.5%, respectively, last Friday, and have retained most of those gains so far this week. Some investors got excited about rumours that Reliance Jio Infocomm Ltd is set to raise tariffs. While there is little doubt that an increase in tariffs will bring much relief to telecom companies, the big question is if such a move is on the cards to begin with.

Reliance Jio hasn’t shied away from high amounts of cash burn to grow its market share at a quick pace. In less than two years of operations, it has grown to 23% of the market. Its share has risen further in the September quarter, although industry numbers are yet to be released by the sector regulator. Even so, the company is still a long distance away from its aspirational target of a 50% market share.

In this backdrop, analysts are surprised that such a move is being considered in the first place. “It would be premature, in our view, to presume Reliance would lift tariffs soon given its clear intent for market leadership," analysts at Jefferies India Pvt. Ltd said in a note to clients.

The brokerage firm estimates that competitive pressures may not ebb for another 9-12 months, given Jio’s clear focus on subscriber addition.

“The timing of the rumoured move is suspect, especially given Vodafone Idea’s recent announcement of a $3.5 billion fundraising plan," says an analyst at a domestic institutional brokerage firm.

If anything, Reliance Jio may need to step the ante, considering that incremental market share gains may be more difficult to come by from two fairly well-capitalized companies, as opposed to early gains that came partly from firms that were on their way out.

Of course, it must be noted here that Jio’s stance thus far has been to maintain tariffs at levels that are about 20% cheaper than competition. If it raises tariffs, incumbents may be expected to maintain the differential by raising their own tariffs. Not that they would complain, given the rising cash burn in their own operations. But given this dynamic, it will be interesting to see how tariffs are calibrated, if at all.

Subscribe to Mint Newsletters
* Enter a valid email
* Thank you for subscribing to our newsletter.

Never miss a story! Stay connected and informed with Mint. Download our App Now!!

Edit Profile
Get alerts on WhatsApp
My ReadsRedeem a Gift CardLogout