Telecom price war resumes, may delay Arpu recovery

Telecom tariff war has spilled over into the new year.

In January, Mukesh Ambani's Reliance Jio has announced new offerings twice, forcing the top player in terms of the number of subscribers Bharti Airtel to match the Jio plans.

On Tuesday, RJio had announced a new Republic Day plan offering 50% more data to its users. The new offerings imply 25-33% tariff cuts.

RJio's latest cut could prolong the average revenue per user (Arpu) improvement in the industry, but the aggression by Bharti Airtel and RJio could help both achieve higher incremental market share gains in the 4G data segment, an analyst note from Bank of America Merrill Lynch said.

This is the second "implied tariff" cut by RJio this month and indicates its intention to continue to focus on subscriber additions until it reaches a particular scale.

"With Jio's share of the 4G market above 50%, it is believed that other telecom companies will likely remain aggressive on prices to stem further market share losses," an analyst from UBS said.

The analyst said that the pricing environment is toughening as other operators are reducing the price gap with RJio though the changes are not meaningfully Arpu dilutive.

Following the launch of RJio in September 2016, the incumbents, including Bharti Airtel, Vodafone and Idea Cellular were forced to match the RJio offers. But according to analysts, the situation which existed a year back was different compared to the current scenario.

The entry of Jio has shaken the telecom industry which is moving towards a consolidation phase where three private players along with a telecom PSU will be left.

"RJio may resume its aggressive pricing. The company's ambition to accelerate subscriber additions through aggressive pricing may be resurfacing. This could prolong tariff downtrending for incumbents, and we see potential near-term downside risks to Arpus of incumbents as well as Jio," Morgan Stanley said in the report.

RJio had earlier said it doesn't plan to reduce the monthly tariff, but the potential introduction of the Rs 98 plan in the 4G smartphone segment would open up the possibility of aggressive offers in the feature phone segment. About 50% of the incumbent's revenues are exposed to feature phone users.