“Several investors believe that incumbents/Bharti should be able to embark on an upward sustainable growth trajectory post-Sep 17…RJio may have actually done the consolidator incumbents a costly favor since the stress caused by it has only accelerated industry consolidation. But we still see four moments of truth on the horizon which could pose a risk to the strength and longevity of recovery,” JP Morgan said.
These ‘moments of truth’, the brokerage, says could be JioPhone – RIL’s 4G featurephone – not doing well which in turn could force Jio – whose SIM is embedded in the device – to reduce its tariff again; Jio bringing in further discounts if it sees slowing demand for its services at a higher average revenue per user (ARPU) level; the telecom regulator reducing IUC charges; and a historical lack of pricing discipline in the sector.
“RJio has set a high bar for its 2020 vision (50% revenue market share by 2020); so, it may not increase its effective ARPU appreciably and/or fast enough if the market-share progress is not consistent with its 2020 vision,” said JP Morgan.
“If revenue/subscriber market share is the overriding intent for RJio, this could keep industry ARPUs in check. This, in turn, keeps industry growth in check,” it added.
Secondly, if the Telecom Regulatory Authority of India (Trai) cuts IUC – a fee a mobile service provider pays another to link a call to the latter’s network – from the current 14 paise a minute, it will be a boon for Jio and a “bounded” risk to Bharti Airtel and Idea Cellular, two listed telcos. Vodafone India isn’t listed in the country but will also get hurt if IUC is lowered.
A 50% cut in IUC which will help Jio see a relief of Rs 27-30 per subscriber per month. “RJio could choose substantially to pass this saving on to the consumer through price cuts or maintaining its current pricing,” continuing the price war, said the report.
Further, if the JioPhone does not match up to the hype it has created with 6 million initial bookings in the first 24 hours, then RIL may substantially reduce its stated Rs153 monthly ARPU plan and/or offer free services for a limited period as promo just as it did with 4G.
“This can create ferment at the lower-end subscriber base for peers though the revenue impact is more limited at this end (the lower 40% of subs account for less than 20% of industry revenues)”, stated the analysts at the brokerage firm. However, the dent will not be as severe as the first six months of free offers.
Mukesh Ambani-owned Jio had disrupted the sector, with its free offers since its launch last September and although it started charging subscribers for data from this April, the price is still way below the market with voice being free for life. Forced to match Jio, Bharti Airtel, Idea and Vodafone have seen their dented severely. But the April-June quarter saw on quarter revenue being flat to a tad higher, suggesting initial signs of recovery.