The recent price cut by Reliance Jio Infocomm Limited (RJio; 'IND AAA'/Stable) will delay the prospects of a recovery in incumbents' average revenue per user (ARPU) levels, says India Ratings and Research (Ind-Ra). RJio announced an INR50 cut in its existing plans and/or 50% more data per day on plans ranging from INR199-498. The price cut indicates pricing discipline may still be uncertain and highly dependent on consumer behaviour despite consolidation in the industry paving the way for long-term structural improvements.
Two large telecoms registered an ARPU decline of 25% yoy each for 2QFY18. RJio reported a higher ARPU of INR156 for 2QFY18 than the INR84 recorded for the industry for the period, as RJio's entire customer base comprises broadband data subscribers. Meanwhile, broadband data subscribers constitute only 20% of the customer bases of other large telecoms. Non-broadband subscribers are typically low ARPU-generating customers.
According to Ind-Ra, top telecoms would focus more on increasing their subscriber market share than revenue market share during 2018 and the dual sim phenomenon would continue for longer-than-expected, given low customer loyalty and high price sensitivity.
Although current competitive tariffs do not seem sustainable, the short-term outlook for the ARPU remains subdued, thus indicating another tough year for the telecom sector. Mounting pricing pressure, debt burden and capital outlay needs led to the exit of small telecoms from the market. Large telecoms have prepared themselves for the continued challenging environment via asset monetisation, which emerged as a key credit theme in 2017, besides industry consolidation.
Ind-Ra previously expected a recovery in ARPU in mid-to-late FY19 in view of a likely stabilisation of industry tariffs at a higher level that would have led to user SIM consolidation. RJio increased pricing by 40% in October 2017. Thereafter, it reduced the validity on the INR309 plan to 49 days from 84 days. However, it has announced cashback offers to ensure customer stickiness.
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