Telecom tariffs may not rise till Jio hits 400 mn users: Analysts

The hyper-competition in the telecom sector is expected to spill over to the coming year as Reliance Jio will continue to dominate the 4G space for next six to twelve months.

Heightened competition would also mean tariffs are unlikely to go up anytime soon as Jio is unlikely to raise prices till it reaches 400 million subscriber base, analysts say.

While tariff hikes from Jio are not unprecedented, competitive pressures may not ebb for another nine to twelve months given the company’s clear focus on subscriber additions, research firm Jefferies said in a note.

“With Rs 3.1 lakh crore already committed as capital spend across telecom and digital services, it may need to garner a substantially high and clearly differentiated market share to eventually succeed. With Jio still a number three player in both revenue and subscriber market share, it is still some distance away from this. Bharti appears to sense an opportunity as well to gain potentially premium Arpu (average revenue per user) in the near term while Idea, Voda work through their potentially complex and challenging consolidation,” analysts at Jefferies said in the report.

Bank of America Merrill Lynch (BofAML) says Jio is aiming for number one position and unlikely to raise tariffs till it reaches 400 million subscribers and with elections around April-May 19, no tariff hikes are expected.

“Vodafone Idea’s integration is progressing at a slower than expected pace and could take at least a year for its network coverage to improve. This would likely give an opportunity to both Jio/Bharti to gain market share from Vodafone Idea. Even refarming of 900 MegaHertz (MHz) spectrum and freeing of 2100 MHz should help Bharti to improve its capacity,” the note by BofAML said.

Vodafone and Idea merger got operational on August 30. Last week, in its first quarterly result for the merged entity Vodafone Idea, the firm announced plans to raise capital of about Rs 25,000 crore; Rs 11,000 crore by Vodafone Group and up to Rs 7,250 crore by Aditya Birla Group.

If approved, the plan of raising capital is expected to be complete in Q4 of this fiscal. Vodafone Idea’s loss after tax stood at Rs 4,974 crore in the July-September quarter, which included a one-time charge of Rs 566 crore, mainly due to integration and merger-related costs.

Deutsche Bank Research says Bharti Airtel believes Arpus have stabilised and expects pricing trends to be stable in the mid-term. Airtel has expanded their minimum Arpu plans (Rs 35) pan-India, which should be supportive of Arpu. The company estimates that 40% of customers account for 80% of revenues.

Going forward, Airtel expects capex to moderate in the mid-term. The estimates for FY18/19 show it would spend Rs 44,000 crore to roll out its 4G network and fibre for backhaul and home broadband business. Going ahead, the mobile capex would be driven by capacity enhancement and network densification. Airtel would raise capital from its long-term partners, if it deems necessary to maintain its competitive position, analysts at Deutsche Bank said.

Airtel and Vodafone Idea are seeing a slow transition of its 2G consumers to 4G, while Jio continues to generate strong demand with its offerings, especially the subsidised feature phones.

India has over 1 billion mobile users and 50-60% of them are still on the 2G network, i.e, not on the internet. The battle for the next round will be fought for these 2G users.

The number of internet users has been growing at a fast pace as access to data services and 4G-enabled handsets became affordable with the entry of Reliance Jio.

The article was first published in DNA as 'Telecom tariffs may not rise till Reliance Jio hits 400 million subscribers'