Revised RJio plans won't reduce sector competition

The revised tariff plans from Reliance Jio, though higher for mobile consumers, may not reduce competitive intensity in the telecom sector.

Since the entry of RJio in September last year, the market has seen a tremendous fall in the tariffs with voice calls being virtually free. Existing telecom players including Bharti Airtel, Vodafone and Idea Cellular have seen a hit in their margins and the situation is expected to continue for next few quarters, according to analysts.

The new tariffs by RJio are 30-50% higher on a monthly basis vs prior promo offer, but still are 25% lower than current operators offers.

RJio reducing the pricing aggression/validity of its 4G promo offers may bring some relief to incumbents, although it may prove short lived, as the potential launch of 4G feature phones by RJio could prove disruptive for the large 2G subscriber base, which accounts for 65% of revenues for the top incumbents, , an analyst report from Morgan Stanley said.

On Tuesday, RJio updated its tariff plans under the 'Jio Dhan Dhana Dhan' offer, continuing the promo offers but with somewhat reduced benefits.

On April 11, 2017, RJio introduced its offer, which had a validity of 90 days. On Tuesday, it released its updated tariff plan, under which it reduced the validity of Rs 309 and Rs 509 plans to 56 days versus 84 days previously while retaining the respective voice and data benefits. The Rs 309 plan translates into a monthly charge of Rs 163, ~13% lower than Airtel's F4Q17 ARPU (after adjusting for taxes).

RJio started with offering free data and voice services till March 31, 2017, post which it launched new plans.

However, another report from Bank of America Merill Lynch said the new tariff plans by Jio should help Bharti to get back traffic. "The announcement (on RJio new tariff plan) is in-line with market expectations and should help Bharti to get back traffic as discounts are reduced and implied tariffs are raised."

RJio's new tariff plans are an effort to improve profitability, a positive for the telecom sector. "After amassing over 120 million subscribers, RJio is now focusing on pushing up the Arpu (average revenue per user) to improve its profitability," according to rating agency Icra.

Harsh Jagnani, sector head and vice president, corporate ratings, Icra, in a statement said, "Although the plans continue to remain attractive for the subscribers, they directionally point to ARPU improvement. As Icra anticipated earlier, the ARPU levels of the industry would have to improve to sustain the sizeable debt levels and improve return on investments. After amassing more than 100 million subscribers, RJio is now focusing on pushing up the ARPU to improve its profitability."

While the competitive intensity of the industry would remain high, the pricing by RJio indicates some easing of pressure on ARPU and RJio seems to be moving to a balanced approach between subscriber addition and revenue growth, ICRA said.

GOOD FOR USERS

• The new tariffs by Reliance Jio are 30-50% higher on a monthly basis vs prior promo offer
   
• RJio reducing pricing aggression/validity of its 4G promo offers may bring some relief to incumbents