ICICI Securities on Monday said in a research note that the new postpaid plans launched by Reliance Jio “may not significantly” hit the postpaid base of Bharti Airtel. The firm said that the retail users account for only 30% of postpaid connections and that these users are “least price-sensitive.” Reliance Jio, the largest telecom operator in India in September unveiled its JioPostpaid Plus plans with the base plan priced at Rs 399 while the top-tier plan carried a price tag of Rs 1499. ICICI Securities in its note highlighted that Airtel did not witness “much impact” on its user base “when the market leader did steep cuts in postpaid tariff” in its initial years.
Introduction of Reliance Jio Smartphone Not to Impact Vodafone Idea and Airtel
The firm said that Reliance Jio now requires a low-end smartphone to retain feature phone users who are likely to hit the stores for refund from September 2020. The largest telecom operator in India introduced a refund policy on its JioPhone that enabled users to receive up to Rs 1000 provided they return the phone under 36 months. ICICI Securities said that Reliance Jio has 100 million such subscribers and that “their retention would be the priority” for the operator.
It has been reported that Reliance Jio is planning to introduce an “affordable” Android smartphone later this year or early next year. The users purchasing the low-cost smartphone from Reliance Jio would also likely be offered benefits such as free data. However, ICICI Securities highlighted that the “quantum of subsidy” on the low-cost smartphone will depend on the average revenue per user (ARPU) commitment.
“Therefore, low-end smartphones will come either with limited subsidy on the handset and affordable tariffs, or deep discount on handset but higher ARPU commitment,” ICICI Securities said in its note.
The firm said that the feature phone, unlike the smartphones may not be affordable on both handset and tariff prices. ICICI Securities highlighted that the limited subsidy and higher price of smartphones would “significantly limit impact” on Airtel and Vodafone Idea (VIL).
Vodafone Idea Requires Over 50% Hike in Tariffs
With P D Vaghela taking charge as the chairman of Telecom Regulatory Authority of India (Trai), ICICI Securities is expecting progress on the floor price for cellular data. The telecom operators in India including Airtel, Vodafone Idea and Reliance Jio proposed floor data prices in the range of Rs 20 to Rs 35 per GB. In late May, it emerged that the discussion on floor prices would happen after the COVID-19 lockdown was lifted.
“Operators may wait for clarity on floor price as its implementation in their favour may pave way for the next tariff hike, which would be sustainable, and provide level playing ground for Bharti and VIL,” ICICI Securities said in its note.
Similar to December 2019, tariff hike, ICICI Securities highlighted that VIL might introduce the new tariffs followed by other operators if no clarity soon emerges on data floor price. The firm estimates that VIL may require over 50% hike in tariffs. The operators in the previous month were hit with the adjusted gross revenue (AGR) verdict with the apex court providing a 10-year time period for the repayment of AGR dues.
“Bharti has seen highest conversion of tariff hike to revenue growth, which means it would gain on every tariff hike,” ICICI Securities said in its note.
The firm also highlighted that the upcoming spectrum auction will cause additional burden to Reliance Jio as the largest telecom operator will have to renew 850 Mhz of spectrum belonging to Reliance Communications. It recently emerged that Reliance Jio had urged the Department of Telecommunications (DoT) to hold auctions at the earliest. Reliance Jio has been using the airwaves from Reliance Communications particularly in the 800 MHz under a sharing agreement to enhance its 4G coverage across India. Reliance Communications airwaves in 18 circles are reported to expire during the months of July to August, 2021.
ICICI Securities highlighted that Bharti Airtel also has spectrum renewal in 2021, however, the operator is said to have “excess spectrum” due to its merger and acquisitions of Tata Tele, Telenor and Videocon. The firm projects Airtel renewal payout at only Rs 58 billion.
