It is expected the sector's Arpu will bottom out in FY18, grow 3% in FY19 and 5% in FY20
The tariff hike by Reliance Jio will enable normalisation in telecom pricing, which was impacted when the Mukesh Ambani-backed firm entered the sector last year, said analysts.
At the same time, experts believe that the initial strategy of free services by Jio was rational as it had to encourage customer sampling of its country-wide network in the shortest possible time.
However, a continuation of aggressive pricing poses a significant risk for Jio, an analyst report by Deutsche Bank.
The incumbents have been successful in rolling out 4G and defending their revenue share via calibrated offers to counter Jio. An expanding sector revenue-base is crucial to support a fair return on Jio's massive investment of about $22-23 billion in the wireless business, the report said.
Last week, Jio reduced validity period on its popular Rs 399 plan from 84 days to 70 days, implying a 20% price increase. It also introduced a new Rs 459 plan with 84-day validity, a 15% price increase, according to reports.
A UBS research report echoed similar views and said the increase in tariffs by Jio is a positive for the sector. "The price increases are positive for incumbents, who followed Jio's prices in the past six months and will now likely be able to raise prices as well. Jio's large and increasingly sticky subscriber base of over 100 million will incentivise the company to emphasise monetization of subscribers as much as acquiring new subscribers."
It is expected that telecom sector's average revenue per user (Arpu) will bottom out in FY18 and grow by 3% in FY19 and 5% in FY20, analysts said.
The increase in tariffs also expected to expand Jio's average revenue per user by up to 20% and is a positive for the telecom sector which is seeing rapid consolidation, another report by Philip Capital said.
However, a Credit Suisse report has said that the new tariffs of Jio are still 65% lower than an average smartphone customer was paying before its launch, which would continue to put pressure on average revenue per user Arpu of incumbents. "At 20% increase every three months, we need at least 18 months for the smartphone customer segment to return to pre-Jio levels of Arpu. With over 65% discount still running, we expect a downward pressure on Arpu for incumbents to continue," it said.
Since the entry of Reliance Jio, the existing players including Bharti Airtel, Vodafone, Idea Cellular have been facing pressure on their margins. It has also led a wave of consolidation in the industry where many deals have been announced, including Airtel acquiring Tata Group's wireless business, a merger between Vodafone and Idea Cellular and Reliance Communications's merger with Sistema Shyam Teleservices wireless business.
...& ANALYSIS
- It is expected the sector's Arpu will bottom out in FY18, grow 3% in FY19 and 5% in FY20
- The rise in tariffs also expected to expand Jio's average revenue per user by up to 20%
- However, Credit Suisse said it will take at least 18 months for the smartphone customer segment to return to pre-Jio levels of Arpu
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The incumbents have been successful in rolling out 4G and defending their revenue share via calibrated offers to counter Jio. An expanding sector revenue-base is crucial to support a fair return on Jio's massive investment of about $22-23 billion in the wireless business, the report said.
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