Jio price hikes set to de-escalate three-year-long telecom price war
NEW DELHI: Mirroring rivals Bharti Airtel and Vodafone Idea, Mukesh Ambani-led Reliance Jio on Tuesday said that it would begin hiking tariffs over the next few weeks. The move is set to put the brakes on a three-year-long price war which brought mobile service prices to rock bottom and sent sectoral revenues plunging.
“Like other operators, we will also work with the Government and comply with the regulatory regime to strengthen the industry… and take measures including appropriate increase in tariffs in next few weeks,” Jio said on Tuesday, adding that it will make sure that the hikes do not “adversely impact data consumption or growth in digital adoption and sustains investments”.
Jio’s planned price hikes are set to ease the pressure on its savaged rivals, both of whom had announced on Monday that they would increase prices from December 1 due to “acute financial stress” and “eroding viability”.
While investors had reacted positively to the development on Tuesday, sending Vodafone Idea (+34.68%) and Bharti Airtel (+7.36%) scrip zooming, brokerages had pointed out that the sustainability of these hikes would depend on Reliance Jio, which has consistently called the shots on pricing since its launch in 2016.
According to TRAI, the previously lucrative mobile data segment saw average revenue per user (ARPU) crash from Rs 269 per GB in 2016 to just Rs 11.78 per GB in 2018, while overall mobile service ARPU has fallen from Rs 81.39 per month in 2017 to Rs 70.55 per month in 2018.
The over Rs 40,000 crore liabilities each for Airtel and VIL arising from the SC’s AGR judgement was the primary reason the two posted all-time record losses during the second quarter this fiscal, but both have seen their margins decimated by Jio’s prices (which are still substantially lower than their own plans).
VIL had posted India’s largest quarterly loss ever at Rs 50,922 crore while Airtel recorded its highest ever loss of Rs 23,045 crore for the quarter.
According to brokerages, however, Airtel and VIL may now be able to hike their tariffs by as much as 15 per cent. “Our assessment suggests the possibility of 15 per cent hike by Vodafone Idea (VIL) and Bharti,” Motilal Oswal said. These hikes, it added, are likely to be targeted for smartphone customers. Non-feature phone customers account for around 45 per cent of their customer base and 70 per cent of their revenue.
Government relief still needed
But, experts warn that while the price hikes will have a substantial positive impact on the sector’s financial health in the medium and long-term, meeting the short-term liabilities from the Supreme Court judgement will still require government relief for the sector, especially VIL, to have a fighting chance at survival.
“Several questions still remain,” said Kotak Institutional Securities, including the quantum of the hikes, TRAI’s reported consultations on a possible floor pricing for the sector and what form, if any, government relief takes. Kotak’s big question — “What will Jio do?” — has now been answered with the firm’s Tuesday announcement. Jio will hike prices.
“This was a long time coming… Indefinite tariff cuts were unsustainable. In fact, tariffs had stabilised over the past two quarters and now, it looks like prices may finally begin rising again,” said a senior industry consultant.