Reliance Jio’s Price Cut Will Obstruct Rivals’ Recovery

The recent price cut by Reliance Jio Infocomm Ltd. will delay the prospects of a recovery in incumbents' average revenue per user levels, says India Ratings and Research.

Jio announced an Rs 50 cut in its existing plans and/or 50 percent more data per day on plans ranging from Rs 199-498. The price cut indicates pricing discipline may still be uncertain and highly dependent on consumer behaviour despite consolidation in the industry paving the way for long-term structural improvements. Two large telecoms registered an ARPU decline of 25 percent year-on-year each for the second quarter of the financial year. Jio reported an ARPU of Rs 156 for the September-ended quarter compared with Rs 84 recorded for the industry for the period, as Jio's entire customer base comprises of broadband data subscribers.

Meanwhile, broadband data subscribers constitute only 20 percent of the customer bases of other large telecom firms. Non-broadband subscribers are typically low ARPU-generating customers.

According to India Ratings, top telecom operators would focus more on increasing their subscriber market share than revenue market share during 2018 and the dual-sim phenomenon would continue for longer-than-expected, given low customer loyalty and high price sensitivity.

Thus, the industry pricing trend is moving towards competitive pricing on long validity plans (70-90 days) to increase customer stickiness.

Also Read: Reliance Jio Offers The Cheapest Tariffs

Although current competitive tariffs do not seem sustainable, the short-term outlook for the ARPU remains subdued, thus indicating another tough year for the telecom sector.

Mounting pricing pressure, debt burden and capital outlay needs led to the exit of small telecom firms from the market. Large operators have prepared themselves for the continued challenging environment via asset monetisation, which emerged as a key credit theme in 2017, besides industry consolidation.

India Ratings previously expected a recovery in ARPU in mid-to-late financial year 2018-19 in view of a likely stabilisation of industry tariffs at a higher level that would have led to user SIM consolidation. Jio increased pricing by 40 percent in October 2017. Thereafter, it reduced the validity on the Rs 309 plan to 49 days from 84 days. However, it has announced cashback offers to ensure customer stickiness.

Also Read: Mukesh Ambani's Reliance Jio To Buy RCom's Spectrum And Towers

India Ratings and Research, a wholly owned subsidiary of Fitch Group, is a SEBI and RBI accredited credit rating agency operating in the Indian credit market.