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Home›Maximum revenue tariff›Jio effect: telecom operators will take a long pause on tariff increases

Jio effect: telecom operators will take a long pause on tariff increases

By Jacob Castillo
June 27, 2021
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It is Vodafone Idea, cash-strapped and the weakest in terms of adding subscribers, which would lose the maximum in the new wave of competition in terms of tariff packages and acquisition of new subscribers.

Reliance Jio’s September 10 launch of its new affordable 4G smartphone, in partnership with tech giant Google, sidelined the prospect of a price hike for telecom operators for quite a long time.

A tariff status quo would still lead to an improvement in Jio’s average revenue per user (Arpu), as some subscribers of its current cheap 4G phone, JioPhone, are expected to switch to the new one, JioPhone Next. Rival Bharti Airtel would also not be affected as its rates are already higher than Jio’s and it has the advantage of having premium users.

It is Vodafone Idea, cash-strapped and the weakest in terms of adding subscribers, which would lose the maximum in the new wave of competition in terms of tariff packages and acquisition of new subscribers.

“In order for Jio to capture a significant portion of the 2G customer base, we believe it will need to be competitive both on the price of devices (which should not be significantly higher than the average selling price of phones) and on tariffs (which will need to be in line with 2G tariffs.) Without either one, we think traction on this smartphone might be limited, at least in the short term, ”Goldman Sachs said in a report.

Highlighting the difficult times ahead for Vodafone Idea, Credit Suisse said: “Airtel’s premium brand positioning should probably help. However, Jio’s 4G smartphone could likely have a bigger impact on Vodafone Idea, given its balance sheet challenges and higher share of 2G customers.

There are around 300 million subscribers in India who still use 2G multifunction phones and it is this segment that Jio is targeting with the launch of its new affordable smartphone. Although he has not yet revealed the price, it is expected to be the same in the 5,000 rupee range. Analysts estimate that of the 300 million 2G users, Bharti would have around 138 million users and Vodafone Idea, 145 million. The contribution of 2G users to Bharti revenues would be 25% and that of Vodafone Idea 30%.

“We estimate that the current multifunction phone segment in India has 400 million customers (including 100 million JioPhone users) and that the addressable target market for Jio’s ‘ultra-affordable’ smartphone would be 150 million, given the ‘ambitious appeal of smartphones (for those who transition naturally from multifunction phones to smartphones), the presence of a large second-hand handset market in India (for those looking for better specifications at an affordable cost) and the constraints of affordability (300 million users continue to use multifunction phones even when JioPhone was available at a price of Rs 700), ”Credit Suisse said.

The last tariff increase undertaken by the three operators was in December 2019 and since then Bharti Airtel has officially declared that the tariffs have to increase but that it cannot take the first step. Clearly referring to Jio, the company said that if competition raises prices, Bharti will too. “Prices are expected to increase. The Arpu is to rise to Rs 200 in the short term and eventually to Rs 300. That said, pricing is a competitive issue and we are already on a premium. We will increase prices if the competition does, ”said Gopal Vittal, Managing Director and CEO (India and South Asia), Bharti Airtel in the past.

Bharti’s Arpu in the January-March quarter stood at Rs 145, while Jio’s was Rs 138. Vodafone Idea has yet to announce its profits for January-March.

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