Telcos woes continues as Jio continues to disrupt
In May, Jio announced:
- Post-paid tariffs that were less than half of prevailing offers from incumbents
- Far cheaper international calling rates, and
- Increased data allowance on its flagship plans
With these massive announcements, other telcos are further impacted due to decreasing ARPU’s. However, the impact is expected to be minimal as:
- the new post-paid services were available for only about half of the June quarter, and
- it was also the first full quarter of operations after the exit of Aircel Ltd, resulting in gains for incumbents
Why is this important
With lower tariff plans announced by Jio, other telcos have no option but to offer lower tariff plans in order to retain customers as downtrading by subscribers continues to cost-effective bundled plans, which means the decline in Arpu (average revenue per user) and revenues should continue for incumbents.
On account of falling ARPU’s, revenues of Bharti Airtel Ltd and Idea Cellular Ltd’s India wireless operations had declined sequentially 3.7% and 5.7%, respectively in March quarter and are further expected to decline between 2.5% and 3% in the June quarter.
However, the pace at which ARPU’s are declining will slowdown as most of the customers have already shifted to cheaper bundled plans.
A major concern that still prevails is Jio is no mood to relent. With various offers announced, ARPU’s will be under downward pressure for sometime. Even Jio is expected to report a drop in ARPU in the June quarter.
How will the stocks be impacted
With high competitive intensity pulling down margins, we don’t expect any positive surprises for June quarter. Investors should watch out for June quarter results and wait for the industry to adjust to the new standards set by a player like Jio.
Bharti Airtel Ltd. (CMP: Rs. 362.7, Mkt Cap: Rs. 1,45,645 crores, FY2020 EV/EBITDA: 6.8)
Idea Cellular Ltd. (CMP: Rs. 56.7, Mkt Cap: Rs. 24,721 crores, FY2020 EV/EBITDA: 11.3)