New tariff war to delay recovery, says Ind- Ra

The latest price cut announced by Jio is likely to delay the recovery in average revenue per user of the telecom operators, ratings agency Ind- Ra said on Tuesday.

“The price cut indicates pricing discipline may still be uncertain and highly dependent on consumer behaviour despite consolidation in the industry paving the way for long- term structural improvements,” the agency said.

Jio announced ` 50 cut in its existing plans and/ or 50 per cent more data per day on plans ranging from ` 199- 498.

The two large telecom operators registered 25 per cent decline in average revenue per user ( ARPU) in Q2FY18.

According to Ind- Ra, top telcos would focus more on increasing their subscriber market share than revenue market share during 2018 and the dual sim phenomenon would continue for longer- than- expected, given low customer loyalty and high price sensitivity. Thus, the industry pricing trend is moving towards competitive pricing on long validity plans to increase customer stickiness, it said.

“Although current competitive tariffs don’t seem sustainable, the shortterm outlook for the ARPU remains subdued, thus indicating another tough year for the telecom sector,” said Ind- Ra.

Mounting pricing pressure, debt burden and capital outlay needs led to the exit of smaller telecoms operators.

Larger telcos have prepared themselves for the continued challenging environment via asset monetisation, which emerged as a key credit theme in 2017, besides industry consolidation.

It was expected that a recovery in ARPU will be possible in mid- to- late FY19 in view of a likely stabilisation of industry tariffs at a higher level that would have led to user SIM consolidation.

Jio increased pricing by 40 per cent in October 2017. Thereafter, it reduced the validity on the ` 309 plan to 49 days from 84 days.

However, Jio has announced cashback offers to ensure customer stickiness. It also reported a higher ARPU of ` 156 for Q2FY18 than the ` 84 recorded for the industry for the period, as Jio’s entire customer base comprises broadband data subscribers.

Meanwhile, broadband data subscribers constitute only 20 per cent of the customer bases of other large telecoms.

Although current competitive tariffs don’t seem sustainable, the shortterm outlook for the ARPU remains subdued, thus indicating another tough year for the telecom sector

— IND- RA