[vc_row][vc_column][vc_column_text]Market analysts predict fall in revenues in telecom sector

By Sindhu Bhattacharya

Reliance Jio Infocomm is living up to the hype surrounding its arrival, having ‘primed’ competition to offer unbelievably low priced data packs over the weekend. Remember, though RJio has said its services will become commercial from April 1, after a six-month free run, it has priced these services dirt cheap and is driving membership of ‘Prime’ aggressively before March ends. This combination of low-priced data packs and Jio Prime membership drive is already killing the telecom industry.

On Sunday, Paytm chief Vijay Shekhar Sharma started a thread where he sought additional data from market leader Bharti Airtel on Twitter. He began by seeking more information about the Rs 549 plan that offers 1 GB data limit every day. Sharma said he called up Airtel customer care and got 60 GB per month data use option in place of current 15 GB monthly usage limit on Rs 2,999 plan.

Though many among the Twitterati panned him saying there was no need to continue paying Rs 2,999 despite increased data usage, Sharma’s thread spurred countless mobile phone users to also seek higher data usage from their respective service providers. Meanwhile, RJio snatched this opportunity and said on twitter that it would offer him 56 GB mobile broadband plan for just Rs 499, which Sharma obviously accepted. It is entirely possible that Bharti will now try and retain Sharma’s connection by offering him matching plans offline, but the point really is that RJio is changing tariff dynamics of the industry and everyone will have to suffer a cut in revenues due to this.

Rajiv Sharma and Darpan Thakkar of HSBC Global Research said in a note to clients that despite RJio beginning commercial operations from April, “We see sector revenues declining in FY18 by 6% as Average Revenue Per User (ARPUs) for the mid- to high-end of the subscriber base with incumbent telcos may get reset to significantly lower levels. The revenue decline may be bigger for the sector if termination rates were to decline meaningfully, as this may add to the ongoing tariff wars the sector currently faces.” Remember, the industry has already seen a similar 6% decline in revenues in the third quarter, when RJio services were free.

In fact, Edelwiess analysts Sandip Agarwal and Pranav Kshatriya had another warning for the embattled telecom industry: they expect RJIO to venture into feature phone segment with aggressive voice offering which will drive down voice realisations, leading to revenue headwinds. So not only is cheap data fast becoming a headache for the leading telcos Bharti, Idea Cellular and Vodafone India, even voice realisations may fall in the near future.

According to this piece, RJio is offering two key monthly plans at Rs 499 and Rs 303, with 28 days of validity each. Apart from basic offerings, the 4G data available to a non-Prime user in the Rs 499 plan is 5GB for 28 days without any daily cap. But Prime members will get 2GB of 4G data every day, which means 56GB in 28 days. The Rs 303 Plan offers 2.5GB 4G data to non-Prime users, valid for 28 days, while Prime users will receive 1GB 4G data every day for 28 days. It is obvious that with such generous data offers, competition to RJio also needs to loosen its purse strings.

RJio is in a hurry to gain market share and this is evident from presentation it gave to analysts on Friday. Sample this: RJio is targeting 50% market share, in a market 50% larger and an Ebitda margin of 50% by 2021. This means it is eying $22 billion revenue and $11billion Ebitda within the next four years. Obviously then, it must wean away customers from competition to achieve such ambitious targets. But are the RJio targets realistic?

Analysts of IIFL Institutional Equities said in a note to clients that RJIO’s Prime membership will threaten industry revenue growth over the next six months.  They also quoted the company’s presentation to say “R JIO thinks that in its 1GB/day Prime plan at Rs303 for 28 days, effective yield will be Rs30/GB and it will go up to Rs50/GB in six months and will be higher in regular packs. We think RJIO has overestimated industry revenue and its revenue market share, and it has underestimated the capability of competition to raise their data capacity.”

Whether Rjio achieves its ambitious medium term targets of market share etc remains to be seen. But in the immediate future, competition cannot afford to sit over RJIo’s unmatched aggression. In these telecom wars, the only beneficiary for now seems to be the Indian phone user.[/vc_column_text][/vc_column][/vc_row]

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