Home / Industry / Telecom /  Reliance Jio’s  falling  Arpu  may be good news for sector

New Delhi: Reliance Jio Infocomm Ltd, India’s most profitable telecom operator, has witnessed a continuous drop in its average monthly billings over the past five quarters and although it still outperforms rivals on this metric, analysts say the slide may finally put pressure on the company to raise tariffs.

Any increase in tariffs would spell good news for the telecom industry which has seen operators shut shop or get acquired after a bruising price war started with Jio’s entry in September 2016.

From 154 in the December 2017 quarter, Jio’s average revenue per user (Arpu) fell 15.6% to 130 in the same quarter in 2018 and to 126.2 in the March 2019 quarter. Arpu is the total revenue of the operator divided by the number of users or connections on its network.

A declining Arpu means subscriber additions on the network outpace its growth in revenue. In other words, every incremental user contributes less to the total revenue.

“This simply implies that the quality of Jio’s subscriber base is becoming weaker. Ideally, low-paying customers should not grow beyond a certain stage and Arpu eventually must rise. Moreover, a declining Arpu for Jio is good for its rivals as it would put some sort of pressure on Jio to raise tariffs," a Mumbai-based analyst said requesting anonymity.

Interestingly, as Jio sees massive user additions and falling Arpu, Bharti Airtel and Vodafone Idea have started weaning low-paying customers by putting in place minimum recharge plans starting at 35.

In fact, Bharti’s Arpu improved to 104 in the December 2018 quarter from 100 in the preceding quarter, the first such increase after nine straight quarters of decline. The company had modified the customer base definition to represent only paying customers. Similarly, Vodafone Idea’s Arpu too rose by a rupee from 88 in the September 2018 quarter to 89 in the December quarter. Both these companies have not reported earnings for the March quarter.

“Every telco wants subscribers that generate significant revenue but Jio, unlike its rivals, can better sustain a decline in Arpu and keep adding low-paying customers since it operates a 4G-only network and can add users at a minimal cost. But till when can it sustain the decline in Arpu is the question," said Mahesh Uppal, director at communications consulting firm ComFirst India.

An email sent to Jio remained unanswered at press time.

Moreover, telecom tariffs have bottomed out and all telcos now have almost equal revenue market share and any price-led aggression could impact all adversely, Crisil said in a report dated 16 April.

To be sure, Jio’s performance on metrics such as data traffic, profit and 4G users is much better than its rivals’. In the December quarter, Vodafone Idea’s and Airtel’s Ebitda (earnings before interest, taxes, depreciation and amortization) was 1,136.8 crore and 1,949.8 crore respectively, while Jio’s was 4,053 crore.

Cellular Operators Association of India (COAI) believes Jio’s Arpu decline is not surprising given the aggressive pace at which the subscriber base is growing. “The industry should also start taking into consideration the mix of customers on the telco network. Also, in terms of ARPU, Airtel and Jio might come neck-and-neck soon and one should also look at the customer churn metric going forward," Rajan Mathews, director general, COAI said

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.
More Less

Recommended For You

Trending Stocks

Get alerts on WhatsApp
Set Preferences My ReadsWatchlistFeedbackRedeem a Gift CardLogout