Telecom sector update!
Last updated: 30 Sep, 2020 | 01:27 pm
Reliance Jio ups the ante
- Reliance Jio has introduced new postpaid plans that offers a free subscription to OTT platforms Amazon Prime, Disney+ Hotstar, and Netflix and a host of other benefits. The tariffs ranging are ranging between Rs 399 and Rs 1,499
- “Jio's postpaid plans will impact the competitors, as it offers more content options than both Bharti Airtel and Vodafone Idea across price points ranging between ₹399 & ₹1,499.” Further, its comparable offerings have been priced at 20% discount to the plan offered by Bharti Airtel.
- Jio's Rs 399 plan offers nearly double the data vs VIL's Rs399 plan. Notably, while VIL's plans start at ₹299, Bharti has discontinued its postpaid plans below Rs499, possibly to operate only in the premium segment. The table below shows a comparison of postpaid plans of the three operators for the base-plan.
Postpaid market in India
- India is largely a prepaid market, with 95.5% of the subscribers on prepaid plans. To that extent, this move by Reliance Jio will have a limited impact on the competitors.
- However, even though the postpaid plans make up a small portion of subscribers, they contribute to a higher share of revenues as they form a premium offering.
- “Over FY16-20, India's postpaid market has halved to Rs221bn and forms 15% of sector's revenues and 5% of sector's active subscribers, according to Jefferies.” Among operators, Vodafone Idea has the highest postpaid market share at 43% market share followed by Bharti Airtel at 28%.
Impact on Bharti Airtel, Vodafone Idea
- Therefore, this move by Reliance Jio will hurt Vodafone Idea more, due to its higher number of postpaid subscribers and service quality gap. Given its AGR dues, Vodafone Idea is already under extreme pressure to resort to tariff hikes.
- According to estimates by ICICI Direct, Vodafone Idea will have to increase tariffs by 92% from current levels to bridge the cash gap for AGR dues.
- Jefferies has estimated that Vodafone Idea will have to pay ₹5,000 crore upfront possibly by FY22, post which it will have to pay ₹6,800 crore (111% of EBITDA) annually from FY23. Added to this is the interest burden, as Vodafone Idea has a debt of about ₹1.75 lakh crore.
- Bharti Airtel is relatively better placed to tackle the competition from Reliance Jio. For Bharti Airtel, postpaid forms 5% of its subscribers and 16% of its India mobile revenues. A 10% churn in its postpaid subscribers could impact Bharti's India mobile revenues by 1%, and EBITDA by about 2%, as per Jefferies.
How is business shaping up in the sector?
- While most industries have been hit due to the pandemic and the lockdown, telecom operators including Bharti Airtel, Reliance Jio & Vodafone Idea have reported strong revenue and EBITDA growth in Q1FY21 due to tariff growth and higher data usage.
- Going forward, the industry mobile segment's EBITDA is expected to grow by 25 to 30% YoY (FY20: 25 per cent). Reliance Jio and Bharti Airtel are well poised to take advantage of this growth going forward.
- While the Supreme Court’s judgement to allow a 10-year period to repay AGR dues has given a fresh lease of life to Vodafone Idea, the window for Vodafone to raise funds, have better models and give paybacks commitment is small.
- The verdict is positive for Bharti Airtel as the company is expected to generate healthy free cash flows from 2020-21 onwards and therefore; the annual AGR payment of Rs 4,400-4,700 crore will not create much burden. Bharti Airtel and Reliance Jio are well poised to gain market share going forward.