The Jio-effect: A ₹4.6k-cr hit in 2016-17 and ₹4.9k cr in 2017-18
The annual revenue of Indian telcos declined for the first time since 2008-09, to ₹1.88 lakh crore in 2016-17 (from ₹1.93 lakh crore the previous year), and will decline further to ₹1.84 lakh crore in 2017-18, brokerage CLSA said in a report released on 7 April.
The reason: the launch and aggressive pricing of the Mukesh Ambani-promoted Reliance Jio Infocomm Ltd that has forced other telcos to cut prices.
The revenue of telcos is expected to recover to ₹1.87 crore in 2018-19, marginally higher than that seen in 2014-15, the brokerage added.
“India mobile sector revenues are declining, triggered by tariff wars between Reliance Jio and incumbents. Although Trai (the telecom regulator) has ended Jio’s latest free ‘Summer Surprise’ offer, subscribers who had already opted for the offer will still get its benefits, and incumbents’ latest offers will still dilute industry Arpu (average revenue per user) at the upper end of subscribers,” CLSA analysts Deepti Chaturvedi and Akshat Agarwal said in the report.
A email sent to Reliance Jio remained unanswered till the time of going to press.
Reliance Jio has signed up more than 100 million subscribers since its launch in September, offering free data and voice calls, undercutting established rivals and eroding industry profitability.
It has also sparked consolidation with Vodafone Group Plc.’s India unit and Idea Cellular Ltd deciding to merge to create India’s largest telco.
Rajan Mathews, director general of industry lobby body Cellular Operators Association of India, said that pressure on pricing will continue for several quarters as telcos scramble for market share (especially in data services) in a country where “it is a question of high volume and low margin”.
Reliance Jio itself has a far more sanguine view. It estimates that revenue of India’s telecom industry will increase 50% from current levels to ₹3 lakh crore by 2021, largely driven by demand for data, while voice revenue will fall from ₹1.5 lakh crore to ₹0.5 lakh crore, according to an investor presentation.
On Monday, Rohit Chordia, an analyst with Kotak Institutional Securities, in a report titled ‘Whose money is it anyway?’ said that Reliance Jio is “an experiment in extreme capitalism and its brute-force-of-capital strategy, reflected in large capital deployment coupled with disruptive-as-it-gets pricing, has already resulted in massive impact on the industry – none bigger than forcing the number 2 (Vodafone India) and number 3 (Idea Cellular Ltd) players to consider a merger”.
“Jio is perhaps trying to force an extreme endgame where it emerges as a super-dominant player. Generating returns seems to be an after-thought at this point,” Chordia said in the report and suggested his investors stay “cautious” about the sector.