How badly have Reliance Jio Infocomm Ltd’s free services hit the financial performance of India’s top telcos? In a nutshell, revenues of Bharti Airtel Ltd, Vodafone India Ltd and Idea Cellular Ltd have fallen by 10% and operating profits have fallen by 23% on a cumulative basis. This is based on a sequential comparison of the second half of financial year 2016-17 with the first half, when Jio’s impact was negligible. 

Incumbents managed to contain the damage through aggressive cost-cutting as well as customer retention plans, especially in the March quarter. This is evident from the fact that March quarter results were far better compared to the performance in the December quarter. 

In the December quarter, the first full quarter of Reliance Jio’s free services, operating margins of Airtel and Idea fell by 475 basis points on a cumulative basis. In the March quarter, they declined by just 10 basis points. Vodafone doesn’t report quarterly results for its India operations, but releases a half-yearly statement. 

All three companies told analysts in earnings calls that things have stabilised since Reliance Jio started charging for its services. Idea even said that it estimates revenues to have bottomed out in the March quarter and expects growth in FY18 compared to the annualised revenue run-rate in the second half of FY17. By the looks of it, Jio is barely done with its disruption; calling the bottom may be premature. 

Coming back to the results in the previous two quarters, incumbents did well to grow their subscriber base between 4% and 6% compared to end-September. And despite Jio’s fierce onslaught, their mobile broadband subscriber base fell by only 2.4% on a cumulative basis. 

In fact, this was only on account of Idea, which lost about a fifth of its broadband subscribers. Airtel and Vodafone managed to grow their mobile broadband subscriber base by 3.4% and 5.6%, respectively. Idea not only underperformed on subscriber addition, but also lagged behind peers in volume growth, both in the data and voice segments. According to an analyst at a domestic institutional brokerage, Idea reacted slowly in changing tariffs, and has paid the price for it; although he expects the company to catch up, especially with the expansion of its 4G coverage in recent months. 

As expected, Jio’s free services led to a sharp fall in tariffs—more so in the March quarter. Price realisations in the data segment fell between 40% and 50% on a year-on-year basis, while voice realisations fell by about a fourth. Of course, with bundled voice and data plans becoming the norm, segment-wise details are less relevant. 

What matters more is how average revenue per user (Arpu) is progressing. On that front, each of the three incumbents reported a drop of around 20% in revenue per subscriber. Will Arpu continue to decline sharply? Analysts at Bank of America Merrill Lynch say in a note to clients, “For incumbents, we believe the large impact has already happened, with high-end consumers reducing their Arpu to around the Rs400 levels. The impact would not be high with low-end consumers reducing Arpu, as the magnitude of the delta is low. Furthermore, if more voice consumers come on bundled packs, then their overall Arpu may inch up." 

To be sure, it is still fairly early in the day to call a bottom for revenues or any other measures including Arpu. Uncertainties still loom for the sector; a recent addition being the anticipated VoLTE (voice over long-term evolution) feature-phone launch by Jio. This can increase the addressable market for Jio substantially, especially if the price point is affordable. “Jio’s appetite for further price disruption and the impact of its VoLTE feature phone launch are material near-term uncertainties," analysts at Kotak Institutional Equities say in a note to clients.

In sum, incumbents have weathered the storm of Jio’s free services fairly well. As Merrill Lynch’s analysts say, Jio’s impact won’t be as large and sudden as in the previous two quarters, since it has finally started charging for its services. But given the precarious state some of their finances (read high leverage) are, they can barely afford a further worsening of the industry’s structure. And going by the mood Jio has been in, the worst may yet to come.