Free Press Journal

Jio’s entry: Fitch sees tariff rates falling by 10-15% in 1 yr


New Delhi: The start of full-fledged 4G services by Reliance Jio will prompt incumbent operators to lower their tariffs to retain customers, and industry blended tariff could fall by 10-15 percent in the next year, Fitch Ratings said today.

Also Read: Reliance Jio- All you need to know

“The incumbents are likely to respond by lowering their own tariffs to retain customers. We expect the industry blended tariff to fall by 10-15 per cent in the next year,” Fitch said.

It said Reliance Jio’s entry will be “credit negative” for the incumbent operators, particularly smaller telcos, and will hasten industry consolidation.

Reliance Jio, whose services are available from today to all potential users with 4G-compatible handsets, is offering customers free voice and data under ‘welcome offer’ valid up to December 31, after which users will be given free voice calls for life and data plans at about one-fifth the market prices.

“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,” Fitch said.

It said Jio’s blended tariff rates are at least 20-25 per cent cheaper than those of the incumbent telcos, given the lower data charges, and free voice calls or text messages.

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, it predicted.

“Jio’s tariff plans may gradually push the market toward ‘data-only plans’, under which customers are charged only for data, not for voice and text messages. 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,” it said.

Jio, said Fitch, is likely to be “loss making at the EBITDA level for the first two years”.

Also Read: Reliance announces Jio, lays emphasis on digital initiative

“Currently, fewer than 5 per cent of Indian consumers have such (4G-compatible) handsets. However, this is likely to change quickly, as over 70 per cent of new handsets are now 4G, but it is unlikely that Jio will be able to win more than 20-30 million subscribers and 3-4 per cent revenue market share over the next year,” it added.

The top-four telcos’ average operating EBITDA margin is likely to narrow by at least 200-250 basis points (against 35 per cent in 2015) in the next year.

Fitch has reiterated negative outlook on Indian telco industry, given the competition, large capex needs and prospect of debt-funded M&A activity.

“The Indian telco industry should continue to consolidate and we expect five to six operators 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,” Fitch added.