Mobile services

Another Tough Year in Store for Indian Telcos – Research

Reliance Jio, India's youngest and most disruptive network operator, has started this year with a bang by announcing a round of tariff cuts, which could be the beginning of "another tough year for the telecom sector," predicts India Ratings and Research.

Reliance Jio recently announced that it would cut prices by 50 Indian rupees ($0.78) and provide 50% more data per day on plans that cost between INR199 ($3.1) and INR498 ($7.8) each month. This is sure to add to the distress of the incumbent telcos, which have been hit hard by RJio's entry into the market. Offering free and heavily discounted services to Indian consumers, RJio has forced other players to slash their tariffs or lose customers -- with nasty consequences for profitability.

Following a wave of consolidation last year, there was optimism that India's surviving telcos would regain some of their pricing power. But RJio's latest tactics may dash those hopes. Indeed, the moves are likely to further delay any recovery in average revenue per user (ARPU). "The price cut indicates pricing discipline may still be uncertain and highly dependent on consumer behavior despite consolidation in the industry paving the way for long-term structural improvements," says the India Ratings and Research Agency in a research note.

The agency also argues that telcos will this year continue to focus their efforts on building subscriber market share, as opposed to revenue market share. Pricing sensitivity means the dual SIM phenomenon -- with devices able to switch between two active SIM cards -- will be a factor in India for much longer than the agency previously expected.

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Initially, the same agency had forecast that ARPU would recover by the end of 2019 following the round of consolidation. A number of deals were announced last year, including a mega-merger between Vodafone India and Idea Cellular Ltd. , the country's second- and third-biggest operators. Bharti Airtel Ltd. (Mumbai: BHARTIARTL), India's current market leader, was one of the most acquisitive companies, buying Telenor, the consumer wireless business of Tata Teleservices Ltd. and Tikona Digital Networks Pvt. Ltd. in 2017. India's smaller players disappeared.

The report further noticed that "two large telecoms registered an ARPU decline of 25% year-on-year in the second quarter, while RJio reported an ARPU of INR156 [$2.44] in the same quarter, which was higher than the INR84 [$1.32] recorded by the industry." The difference highlights RJio's lead in the mobile data market: Nearly all of its customers use data services, while such subscribers represent only about one fifth of the customer base for the rest of the industry.

— Gagandeep Kaur, contributing editor, special to Light Reading

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