Home/ Markets / Mark To Market/  Jio eyes new horizons with cheap fiber plan

Reliance Industries Ltd’s (RIL) telecom arm, Reliance Jio Infocomm Ltd, seems to be aiming at market share gains in the wired broadband segment. It has announced a new plan called ‘Broadband Back-up’, which starts at Rs198 per month and is available only to new users. Here, Jio offers unlimited data at 10mbps and unlimited voice calls without bundling any over-the-top platforms. Further, it offers other plans to upgrade speed and entertainment.

“We see this as another sign of price aggression focused on acquisition and TAM (total addressable market) expansion for its fiber business," said analysts at J.P. Morgan India.

Graphic: Mint
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Graphic: Mint

As of 31 December, Jio’s subscribers in the wired broadband segment stood at 7.65 million, giving it a market share of 24%. Note that the launch of the new plan comes just ahead of the start of the Indian Premier League where RIL owns digital streaming rights of the sporting event.

“In our view, Jio is looking to replicate its mobile strategy of facilitating transition at very low cost," said analysts at BofA Securities in a report on 27 March. Recall that in the mobile market, customers initially used Jio as a secondary SIM and over a period, many shifted to Jio as their primary SIM.

Jio’s Rs198 per month plan is lower than Bharti Airtel Ltd’s current base plan of Rs499. But note that Airtel’s plan offers speed of up to 40mbps. Also, “With a second home broadband connection being a new concept, its initial take up by existing users may require a greater push," said a Jefferies India report dated 28 March. “If this picks up, operators with patchy broadband service will see market share losses. A 20% conversion could add 3 million back-up broadband subscribers for Jio," they said.

However, the wired broadband segment is too small to move the needle for RIL. Besides, average revenue per user (Arpu) would see dilution. Analysts at BofA estimate fixed broadband to contribute less than 1% to 2% of revenue/Ebitda on a consolidated basis for RIL and hence see limited pressure on earnings per share. Ebitda is earnings before interest, taxes, depreciation and amortization.

But the moot point is if this move by Jio will lead to an expansion in customer base. That may not be easy. “Jio’s entry level broadband plan is lucrative. But the speed of 10mbps does not offer much comfort as home broadband is supposed to be faster. This speed can be obtained via a mobile hotspot as well," said Vivekanand Subbaraman, an analyst at Ambit Capital.

In this backdrop, it remains to be seen if Airtel retaliates by taking price cuts in its broadband plans. The company’s home services segment, which comprises of broadband services, formed about 4% of India revenues in the nine months ended December.

To be sure, broadband customers are generally sticky, and Arpu is higher than the mobile segment. Hence, if Jio or Airtel manage to increase their respective subscriber base, it would support revenue growth, albeit marginally.

Meanwhile, investors in shares of telecom companies await tariff hikes in the mobile segment.

This is expected to be a key trigger for RIL, Airtel and Vodafone Idea Ltd stocks, which are down by 22%, 14% and 49%, respectively, from their 52-week highs. But rising competitive intensity means the outlook on hikes appears bleak. In this scenario, Vodafone Idea is particularly vulnerable.

“A delayed tariff hike while negative for the sector, would hurt Vodafone Idea’s survival hopes the most, and could effectively lead to a duopoly, likely resulting in accelerated market share gains for Bharti and R-Jio," according to Kotak Institutional Equities.

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Updated: 30 Mar 2023, 01:04 AM IST
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