With incumbents gaining ground, will Reliance Jio disrupt the market again?
Whatever shape and form its disruption takes, it would be quite different from the cosy thesis of pricing stability investors seem to be pricing in while valuing telecom stocks and Reliance Jio
Subscriber data for the month of November shows that large telecom incumbents had their best month since Reliance Jio Infocomm Ltd launched operations. Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd increased their market share by 260 basis points in November. Their previous best was a mere 50 basis points increase in April last year.
While one swallow does not a summer make, some analysts say the market share gains of the incumbents could have prompted Reliance Jio to cut tariffs earlier this year. As the accompanying chart shows, Airtel’s market share is now higher than levels prior to Reliance Jio’s launch, and in the case of the Vodafone-Idea combine, the market share is now only slightly lower than pre-Jio levels. As such, Reliance Jio’s market share gains have come entirely on account of the drop in the share of other smaller companies.
In fact, from the looks of it, large incumbents also gained the most when Reliance Communications Ltd shut down its 2G networks last year. They reported an increase of 14.3 million in their total subscriber count in November, much higher than the 3.7 million increase in Reliance Jio’s active subscriber count. This is a trend reversal of sorts —in October, Reliance Jio had added 12.7 million active subscribers, compared to an addition of 5.9 million by the incumbents.
According to some analysts, the incumbents’ upper hand could have led to Reliance Jio’s decision to cut tariffs. Of course, it must be noted that Reliance Jio continues to add subscribers at a healthy pace. As such, the tariff increase it had announced in October last year doesn’t seem to have hurt its growth engine.
The trouble, as analysts at Kotak Institutional Equities have pointed out, seems to be the fact that Reliance Jio continues to occupy the second SIM slot for most of its subscribers. As such, it stands the risk of losing subscribers when a recharge is due.
The fact that incumbents have retained the majority of their subscriber base doesn’t augur well for the industry. Reliance Jio may need to do more to wean subscribers away. According to an analyst at a domestic institutional brokerage firm, Reliance Jio may disrupt the industry again by further subsidizing its feature phones, or by launching an affordable smartphone. Whatever shape and form its disruption takes, it would be quite different from the cosy thesis of pricing stability investors seem to be pricing in while valuing telecom stocks and Reliance Jio.
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