BackJio’s tariff hikes raise concerns about market share wars, demand elasticity
Jio’s unlimited plans in the 1-month category are priced 16-20% lower than rivals, and about 7-14% lower in the 3-month categoryJio’s unlimited plans in the one-month category are priced about 16-20% lower
PremiumSome of the excitement about the tariff hikes announced by telcos this week is wearing off. After Reliance Jio Infocomm Ltd announced its new tariffs, shares of Vodafone Idea Ltd and Bharti Airtel Ltd have given up more than two-thirds of their gains for the week. Jio’s revised tariffs are at a meaningful discount to those announced by Vodafone Idea and Bharti Airtel. Earlier in the week, Vodafone Idea and Bharti Airtel’s combined market capitalization surged by ₹12,300 crore after they raised tariffs by up to 50%. After Jio’s tariff hikes, the gains for the week have fallen to around ₹3,800 crore.
Jio’s unlimited plans in the one-month category are priced about 16-20% lower than its rivals, and about 7-14% lower in the three-month category. This means the company’s fast pace of market share gains can be expected to continue. “Jio has priced its base plan 20% cheaper than the comparable plans of both the companies. The quantum of the hike is lower for base packs and shorter duration packs, underscoring Jio’s continued aggression to continue garnering subscriber market share," say analysts at Emkay Global Financial Services Ltd in a note to clients.
To minimize the damage, incumbents would be forced to offer discounts to some customers on a selective basis, says an analyst at an institutional brokerage, requesting anonymity. As such, the increase in their revenue could be lower than what was anticipated when they announced the massive tariff hikes.
Some analysts are also beginning to worry about the possibility of downtrading among some customers. The price of monthly packs were raised the least, likely reflecting wallet-size constraints at this price point, analysts at Jefferies India Pvt. Ltd said in a note to clients. “India mobile ARPU (average revenue per user) as a percentage of income is above the global average, indicating a limit to wallet size," they added.
Of course, things are still far better compared to where they were last month. The tariff hikes are expected to result in profits for Bharti Airtel’s India mobile business, after several quarters of losses. But for Vodafone Idea, it remains a tough journey. Now that the much hoped-for tariff increases have come through, the company needs to quickly decide on additional measures it will take to defend market share and cut losses.
“Vodafone Idea’s subscriber base continues to remain vulnerable to Jio’s deep-discounting tactics in the base plan and will require further tariff hikes to neutralise its cash burn. Bharti is relatively better-placed with higher 4G coverage and network capacity along with consumer stickiness compared with Vodafone Idea," said Emkay Global’s analysts.
Unlock a world of Benefits! From insightful newsletters to real-time stock tracking, breaking news and a personalized newsfeed – it's all here, just a click away! Login Now!
