Recovery some way off for telcos as price war rages on
NEW DELHI: A recovery in India’s telecom industry, which showed some pricing discipline in the second half of 2017 after a bruising year-long tariff war triggered by the entry of Reliance Jio Infocomm Ltd, could still be some way off. The company owned by Mukesh Ambani has returned to its earlier aggression in pricing to grab market share.
While consumers would continue to enjoy cheap tariffs, older telecom operators, which are in the midst of a consolidation drive, would continue to see pressure on revenues and profitability.
“RIL (Reliance Industries Ltd, parent of Jio), in its third quarter analyst meet, was quite explicit about the thought process behind the price cut move — it will not let incumbents get close on the pricevalue equation and any such effort by the incumbents would be met with similar cuts,” Kotak Institutional Equities said in a report dated January 20.
Jio, which offered free services for the first seven months of operations and started charging for its services in April, effected tariff hikes in July and October 2017, which led many to believe that the worst was over for the sector.
Earlier this month, Jio, however, enhanced the validity by two weeks of its flagship ₹399 pack with 20% more data effective 9 January. It also enhanced all 1GB packs with 50% more data or with a ₹50 discount.
“On our tariffs being reduced, people have missed the fact that it was in response to some of our competitors reducing prices. This has been very consistent with what we said — if someone matched our prices we will give 20% more value,” Srikanth Venkatachari, joint chief financial officer at RIL, told reporters on Friday after the company announced its financial results for the December quarter.
RIL chairman Mukesh Ambani had said in February last year that Jio would monitor all publicly announced plans from operators and not only match the highest selling tariffs but also provide 20% more data in each of these plans.
In the fight for market share, bigger rival Bharti Airtel too has clearly outlined its strategy. “The company will aim to get a disproportionate share of the 4G SIM slots in the market,” Airtel CEO Gopal Vittal said in a post-earnings call with analysts on Friday.
Bharti Airtel’s quarterly net profit plunged 39% to ₹306 crore in the three months ended December 31 from ₹504 crore in the year earlier as it was hit hard by the telecom regulator’s decision to slash interconnection usage charges (IUC) levied by mobile networks handling incoming calls from rival networks. Reliance Jio, on the other hand, benefited from the IUC cut, and reported a profit of ₹504 crore in the December quarter, a first for the company, from a loss of ₹271 crore in the preceding quarter.
Jio added a net 21.5 million subscribers in the three months ended December, taking the total to 160.1 million subscribers.
“India’s market is price sensitive and has a low percentage of users who consume data. Given that operators would want to expand that market it is impossible to do that without more competitive pricing.a serious revival of the sector could be a little distant,” sad Mahesh Uppal, director at communications consulting firm Comfirst India.