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Reliance Jio’s 303 4G plan will hit Bharti Airtel, Idea Cellular – Credit Suisse

Reliance Jio’s new 303 4G data and voice plan will hit revenue and profits at rivals like Bharti Airtel and Idea Cellular, financial services firm Credit Suisse warned, dismissing optimistic interpretations of yesterday’s development.

On Tuesday, Jio Chairman Mukesh Ambani announced that his company will make available a new plan that offers 1 GB of 4G data per day and unlimited voice calls for Rs 303 per month.

None of the rivals have a daily-limit plan as of now, and the 303 scheme is equivalent to offering about 13 GB per month plus unlimited voice calling on VoLTE. The rivals do not offer VoLTE service, and 13 GB of data per month costs about Rs 750 on their cards.

While Credit Suisse called the move to stop free services “the best of positives for the sector”, it warned that many investors may be underestimating the impact that the scheme will have.

Many have, for example, said that the new scheme will not hurt incumbents much because the average revenue generated by incumbents’ subscribers is only Rs 150-200 per month, and such subscribers are not going to switch to Jio and pay the extra Rs 100-150.

However, said analysts Sunil Tirumalai and Viral Shah, things are not quite so simple.

“In our discussions with investors, we believe some positive conclusions are being reached going by the fact that this Rs 303 price point is higher than the sub-Rs200 ARPUs (average revenue per user) for the leading operators, and hence seen as ARPU accretive. We would differ,” the analysts said.

They pointed out that a very large number of people pay substantially more per month than Rs 300 for comparable benefits and they could either switch over to the new operator.

“We actually see this plan putting an effective ‘cap’ on ARPU for all higher end subs of operators. While the blended ARPU for leading operators is no doubt sub-Rs200, we also believe the market is fairly highly concentrated in terms of revenue contribution.

“From our past industry discussions, we understand that Rs 300 is pretty close to the median in terms of ARPU levels (i.e., ~50% of revenues for leading players like Bharti Airtel come from subs with ARPU of Rs300+, and this set of customers would together have an ARPU of Rs 550 plus). Even if incumbents retain these customers, it might be so after the monthly charges here are brought down close to Jio’s plan,” they added.

“We thus see ARPU compression for this upper half of the market a near certainty, while ARPU uplift for the lower half is, at best, a hope.”

SUBSCRIBER DROP-OFF

The second thing to note in the transition to paid services will be how many of its current free subscribers Reliance Jio manages to carry over.

It is estimated that out of the 100 mln users, only 70-80% may be switched on at any time. Many users have purchased multiple connections to take advantage of the free data, and are likely to surrender one or more of their connections on Apr 1.

“The next 30 days would probably be used to gauge interest levels to these new price points, as also to market these to existing subs,” said Credit Suisse, adding that it continues to be cautious on the telecom space.

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