Jio’s postpaid plans turn up the heat on Airtel and Voda Idea

Additional content to match Jio’s plans set to hurt operating profit

The stocks of Bharti Airtel (Airtel) and Vodafone Idea (Vi) shed 8-10 per cent each after Reliance Jio (Jio) rolled out a slew of postpaid plans aimed at the lucrative postpaid telecom market.

Jio on Tuesday announced plans ranging from ~399 to ~1,499, with higher-priced packs coming with increased data and bundled applications. At the entry-level price point, postpaid packs of Airtel and Vi are at a 25 per cent premium to those launched by Jio.

Though Jio had postpaid plans before the new plans, it did not get traction, given limited options and lack of bundled applications. The postpaid subscribers currently account for less than 1 per cent of Jio’s 398.3-million subscribers.

The new ‘Postpaid Plus’ plans will put pressure on Vi and Airtel to match Jio’s offerings. Though the two operators are not expected to cut headline tariffs to match the cheaper Jio plans, offering extra content is expected to increase their operating expenditure.

Analysts Naval Seth and Sonali Shah of Emkay Global estimate an impact of ~1,800 crore to ~2,200 crore, or 4-5 per cent, on the 202021 operating profit if Airtel offers complimentary Netflix and a majority of its postpaid subscribers opt for the same.

Though postpaid subscribers are just 5 per cent of all subscribers in the sector, the higher impact on revenue and operating profit is because the average revenue per user (ARPU) per month in this segment is estimated to be thrice that of the prepaid segment.

The impact of any churn because of Jio’s new plans is expected to be greater on Vi than Airtel, as the former gets an estimated 21 per cent of its revenue from the postpaid segment, against 13 per cent for the latter.

Analysts at IIFL Securities believe the move by Jio may push Vi to the brink, as the company is preoccupied with balance-sheet repair and its 22.5-million postpaid subscriber base, the highest in the industry, may become relatively vulnerable.

The brokerage has also cut Airtel’s target price by ~22 to ~598.

In addition to Jio’s impact on the other two players, telecom tower service provider Bharti Infratel’s stock price fell over 7 per cent. This was because of worries that Vi may not be able to arrest market share loss, aggravating its operational situation, and the impact a two player-market may have on Infratel’s financials.

But, some brokerages believe this move by Jio may lead to higher ARPU across the sector. According to analysts at Jpmorgan, the implied cost of the data adjusted for bundling of third-party content is now cheaper than Jio’s own prepaid plans in similar data limits; Jio’s target perhaps also is upgrading its own 280-million smartphone subscribers to postpaid and higher ARPU plans. This may help nudge the overall market to higher ARPUS, they add.

Analysts estimate that Jio’s June quarter ARPU, which stood at ~140 per month, could see 15 per cent improvement annually to over ~215 over the next two-three years. Though the Street is bullish on Jio’s prospects, the same did not reflect on the stock price of its parent, which ended flat in Wednesday’s trade.