After disrupting the prepaid market, Reliance Jio' focus has now shifted towards the postpaid market, a move which will make it a de-facto operator for consumers. Investment banking firm Jefferies has now stated that the Mukesh Ambani-led telco's new move will surely hurt the ARPU (Average Revenue Per User) of incumbent telcos such as Bharti Airtel, Idea Cellular and Vodafone India. Already, the ARPU of telcos such as Airtel, Idea Cellular and Vodafone has come down drastically since the entry of Reliance Jio, and it now stands lower than the new entrant's ARPU.
Jio's ARPU for the quarter ended on March 31, 2018, stood at Rs 137.1 subscriber per month, which is significantly higher than the ARPU of Airtel at Rs 116 and Idea Cellular at Rs 105. Already the prepaid war helped the telco to gain the upper hand in the Indian telecom industry. And the new Rs 199 JioPostpaid plan will surely give a massive dent to incumbent's telcos ARPU as per the banking firm.
"This is at 50% discount to comparable packs by incumbents and 60% discount to postpaid ARPUs. We have been concerned on Postpaid as it contributes 20% plus of revenues. With the sharp discount launch by Jio we expect incumbents to also respond and thus expect a further decline in ARPU for Bharti and Idea. This is likely Jio's first offer aimed at the enterprise market. Remain cautious on the sector," the Jefferies report said.
With the JioPostpaid plan of Rs 199, the telco is offering 25GB of high-speed 4G data, unlimited voice calls and SMS without any limit, along with free international roaming subscription. In contrast, incumbent telcos such as Airtel, Vodafone and Idea Cellular's base unlimited postpaid plans start at Rs 389 and offers less data benefit than Jio's postpaid plan of Rs 199. The base plan of all the telcos offers 20GB of data, while Jio is offering 25GB of data with its base plan of Rs 199.
"We have been concerned on the postpaid revenues for incumbents given the cost to consumers is 3x of prepaid. Postpaid while making up only 7% of Top 3 operators subscribers, contribute 20% plus of their revenues. While the ARPU for the segment had dropped 25% it was lower than that witnessed in prepaid," the report further added.
Having said that, there's no doubt that incumbent telcos will respond to Jio's aggressive postpaid plan by launching a cheaper postpaid plan or reduce the prices of current postpaid plans. However, the move will hurt the ARPU. If the rival telcos drop the postpaid tariffs by 10%, then their overall ARPU will be down by 2%, and 12%/6% EBITDA (Earnings before interest, tax, depreciation and amortisation). Jefferies noted that these numbers would be for Idea Cellular and Bharti Airtel, but we believe that Vodafone India will also face a similar drop in the ARPU and EBITDA.
Incumbent telcos are yet to make a move countering Reliance Jio's new postpaid plan, but over the weekend, we're expecting them to respond.
