Reliance Jio likely to be loss making at EBITDA-level for first two years: Fitch

Reliance Jio is likely to be loss making at the EBITDA (earnings before interest, taxes, depreciation, and amortization) level for the first two years, and it will face large initial costs, while its subscriber growth will be constrained by the lack of penetration of 4G-compatible handsets, ratings agency Fitch said in a note.

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Fitch also reckoned that Jio is unlikely to win more than 20-30 million subscribers and 3%-4% revenue market share over the next year.

In India, currently fewer than 5% of Indian consumers have 4G handsets. However, this is likely to change quickly, as over 70% of new handsets are now 4G, the ratings agency said.

Fitch also said that Jio’s tariff plans will gradually push the entire market toward “data-only plans”, under which customers are charged only for data, not for voice and text messages.

Nitin Soni, Director, Asian corporates, Fitch Ratings, said that such a shift could be particularly disruptive, given that most incumbents still derive the bulk of their revenue and profit from voice and text messages.

The agency also expects incumbent telecom carriers like Bharti Airtel, Vodafone and Idea Cellular to respond to Reliance Jio launch by lowering their own tariffs to retain customers.

Fitch said that such a move will drive blended tariff down by 10%-15% in the next year.

“The recent rise in data average revenue per user (ARPU) will soon start to reverse and cannibalisation by data services will continue to reduce voice ARPU,” Soni said.

He added that the rising competition will lead to downward pressure on data tariffs at a time when capital expenditure will have to increase to support rising data consumption as cheaper 4G handsets become available.

According to Fitch, Jio’s blended tariff rates are at least 20%-25% cheaper than those of the incumbent telcos, given that data charges are much lower and it does not charge at all for voice calls or text messages.

It added that Jio’s entry will be credit negative for the incumbents – especially smaller telcos – and should hasten industry consolidation.

The Indian telco industry will continue to consolidate and five to six operators are likely to emerge from the shake-out. Unprofitable telcos, such as Telenor and Tata, could exit, given that their businesses will struggle to compete and they are now able to monetise their most valuable assets – their under-utilised spectrum.

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45 Comments on "Reliance Jio likely to be loss making at EBITDA-level for first two years: Fitch"

 

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anup
September 9, 2016 10:39 pm 10:39 PM

love it or hate it but AVOID is powerfull .. airtel/vodafone-hutch/idea-escotel were the strongest mobile network .. there is no way there importance will loose espiacilly in remote areas with this data madness…phone is primarily for calling data is secondary .. and to add it reliance is the most unprofessional operator .. the way they closed CDMA(dont tell mukesh vs ambani .. i m sure they take deceision collectively)..they lost TRUST and look at the way JIO sim demand is turned away .. people are lining up still no sim card .. all depict unplanned unprofessionalism ..

Rajesh
September 7, 2016 12:47 pm 12:47 PM

Jio chapter close… now speeds are not crossing 4mbps atleast saying 4G. anyway till they give free customers will use it. then it broken sims can be found on roads.

Lalala
September 7, 2016 11:46 am 11:46 AM

JIO may extended the free data offer even after Jan 2017 to boost customer volumes says ET

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