Demonetisation: Reliance Jio may extend 'Welcome Offer' beyond December

The government's decision on demonetisation has impacted the mobile industry with a slump in prepaid recharges, smartphone sales and data adoption. Telecom companies are the biggest to be impacted by the move. Reliance Jio is expected to extend its promotion beyond its deadline of December 2016, according to a CLSA report.

“The demonetisation drive and the resultant fall in smartphone sales are likely to have a meaningful impact on Reliance Jio’s entry strategy,” said the report. It added that even before demonetisation, issues with network optimisation or quality had raised the risk of extension of promotions beyond December 2016 by Reliance Jio. With demonetisation also coming in the way, this risk has increased further, it said.

“Extension of ‘free’ promotions by Reliance Jio would impact incumbents in Q4FY17. We await announcements by Reliance Jio on 3 December when the 90-day period for its initial free “Welcome Offer” ends,” said the CLSA report.

The reason for this the current cash crunch due to demonetisation will result in prepaid recharges. There has been a sharp 20-25% drop in prepaid recharges since the demonetisation announcement, said the report. About 80% of the telecom sector revenues and 95% of subscribers use recharges which are largely driven by cash.

However, the cash crunch for prepaid recharges had been partly mitigated by the government's move to allow the use of old Rs 500 notes till December 15, it added.

Apart from recharges, demonetisation is expected to see a large impact telcos data revenues which are more discretionary in nature. With a 50-70% drop in smartphone sales, data revenues of telcos are expected to take a big hit. The report said that 70% of smartphone sales are driven by upgrades from existing users.

The lower new smartphone user growth, telecom operators will focus on driving data adoption among the existing 80 million smartphone user who don't yet use 3G/4G.

The impact of demonetisation will result in bring down revenues and earnings before interest, tax, depreciation and amortisation (EBIDTA) for telecom companies by 1-8%, said the report. While for incumbent players the impact is expected to be lower by 1% in FY17. The cuts in FY18-19 are lower as they expect this to normalise as cash comes back into the system.

In case of data revenue forecast is expected see a much larger decline of 5-85 in FY17 with lower adoption of 3G or 4G expected.

Among the telecom operators, Bharti Airtel is expected to be least affected as it has a diversified revenue mix.

The government's decision on demonetisation has impacted the mobile industry with a slump in prepaid recharges, smartphone sales and data adoption. Telecom companies are the biggest to be impacted by the move. Reliance Jio is expected to extend its promotion beyond its deadline of December 2016, according to a CLSA report.

“The demonetisation drive and the resultant fall in smartphone sales are likely to have a meaningful impact on Reliance Jio’s entry strategy,” said the report. It added that even before demonetisation, issues with network optimisation or quality had raised the risk of extension of promotions beyond December 2016 by Reliance Jio. With demonetisation also coming in the way, this risk has increased further, it said.

“Extension of ‘free’ promotions by Reliance Jio would impact incumbents in 4QFY17. We await announcements by Reliance Jio on 3 December when the 90-day period for its initial free “Welcome Offer” ends,” said the CLSA report.

The reason for this the current cash crunch due to demonetisation will result in prepaid recharges. There has been a sharp 20-25% drop in prepaid recharges since the demonetisation announcement, said the report. About 80% of the telecom sector revenues and 95% of subscribers use recharges which are largely driven by cash.

However, the cash crunch for prepaid recharges had been partly mitigated by the government's move to allow the use of old Rs 500 notes till December 15, it added.

Apart from recharges, demonetisation is expected to see a large impact telcos data revenues which are more discretionary in nature. With a 50-70% drop in smartphone sales, data revenues of telcos are expected to take a big hit. The report said that 70% of smartphone sales are driven by upgrades from existing users.

The lower new smartphone user growth, telecom operators will focus on driving data adoption among the existing 80 million smartphone user who don't yet use 3G/4G.

The impact of demonetisation will result in bring down revenues and earnings before interest, tax, depreciation and amortisation (EBIDTA) for telecom companies by 1-8%, said the report. While for incumbent players the impact is expected to be lower by 1% in FY17. The cuts in FY18-19 are lower as they expect this to normalise as cash comes back into the system.

In case of data revenue forecast is expected see a much larger decline of 5-85 in FY17 with lower adoption of 3G or 4G expected.

Among the telecom operators, Bharti Airtel is expected to be least affected as it has a diversified revenue mix.