Kolkata: Reliance Jio Infocomm’s new prepaid tariffs offering extra data underline the Mukesh Ambani-controlled 4G carrier’s pricing aggression to wrest market share from incumbent rivals even at the cost of a short-term revenue loss, analysts said.
Bank of America Merrill Lynch said Jio’s average revenue per user (ARPU) – a key performance metric – could “see a marginal sequential fall in the first quarter of FY19” but its new tariff offer underlines “its low-cost/high data positioning” to attract bulk of the new smartphone users.
“About 10 million smartphones are being sold in India each month, and we estimate Jio adds 6 million smartphone users monthly, indicating high market share, driven by its low-cost/high data positioning,” the US brokerage said in a note seen by ET.
The brokerage said it expected Jio’s Rs 399 recharge pack to be the most popular one as “it prices data at Rs 1.6 per GB”, well below Bharti Airtel’s “headline data price of Rs 2.3 per GB”.
Jio had on Tuesday revised its tariff plans, offering an extra 1.5 GB 4G data per day to prepaid customers recharging their data packs till June-end, in response to segmented pricing moves by market leader Bharti AirtelNSE -0.16 %, adding fuel to the country’s relentless telecom price wars.
Analysts said over the past few months incumbents – Bharti Airtel, Vodafone India and Idea CellularNSE 0.89 % – had maintained their headline tariffs at a premium to Jio’s rates but were making segmented offers to customers, which were on a par or even better than Jio’s offerings. Segmented offers are targeted at specific customers – not all – to retain them.
BNP Paribas said it expected Jio’s new prepaid tariff offer announced in response to Airtel’s segmented offerings to “put further pressure on industry ARPU”, and be particularly “negative for listed incumbents, Bharti and Idea”.
CLSA said it expected the revenue market share (RMS) battle to intensify in 2018-19, with only 11% share left with smaller or exiting telcos. The brokerage said it had “factored in a 21% on-year decline in the emerging Vodafone-Idea combined entity’s revenues” and predicted a comparatively smaller 11% year-on-year fall in Airtel’s revenues, partly due to the inclusion of Telenor India’s revenues.
Both Bharti Airtel and Idea Cellular slipped on the bourses in Wednesday’s trade. Bharti Airtel lost 1.30% from the previous close on the Bombay Stock Exchange to end the session at Rs 376.10 a share while Idea Cellular closed with a sharper 5.3% fall to Rs 61.65 a share.
Analysts, however, did not give much weightage to Jio’s short-term ARPU blips. The company’s ARPU had shrunk sequentially in the March quarter to Rs 137 from Rs 154, but it still remained comfortably above Idea and Bharti’s March quarter ARPUs of Rs 105 and Rs 116 respectively, which suggests the 4G newcomer’s price packs are seeing strong traction both in urban markets and the hinterlands, the price wars notwithstanding.
BNP Paribas said Jio would ring in sizeable cost savings as it is promoting digital recharges on its latest prepaid tariff offer, and in turn, doing away with distribution channel-related costs for recharges.
“Jio currently pays 10% to the distributor channel as recharge commission – 6.5% to the retailer, 2.5% to the distributor and 1-2% to the zonal distributor – and the company can do away with the entire cost by getting customers to recharge online,” BNP Paribas said in a note seen by ET.
Under its new offer, Jio’s prepaid users recharging below Rs 300 through the 4G operator’s app and through a specific digital wallet (Jiomoney) will get 20% discount while those recharging higher amounts will get Rs 100 off.
BNP Paribas expects a majority of Jio’s prepaid customers to shift to online recharges to enjoy significant 20-25% savings available by paying through the app.