New Jio family plan could delay postpaid tariff hikes: Kotak Inst Equities

Brokerage expects rivals to lower add-on connection fee and/or launch lower data allowance family packs at lower price points to retain their postpaid base; move could dilute ARPU by 1-3%

Reliance Jio’s drive to gain market share with its new family plans could intensify competition in the telecom sector, forcing peers to tweak their offerings and delay tariff hikes in the postpaid segment.

On Monday Jio launched its new postpaid family plans starting from Rs 399. Three additional connections will be offered at Rs 99 per SIM. The company is also offering a one-month free trial offer.

Until now Jio had three postpaid family plans at various price points--Rs 599, Rs 799 and Rs 999--offering one to three extra SIM connections. Family plans of rival firms Airtel and Vodafone Idea start at Rs 999.

Jio has also launched new individual postpaid plans of Rs 299 and Rs 599. A company official said it is not discontinuing its entry level Rs 199 plan for now.

Kotak Institutional Equities expects rival firms to respond to Jio’s new offerings by lowering the add-on connection fee and/or introduce lower data allowance family packs at lower price points to retain their postpaid base and this could dilute average revenue per user by 1-3 per cent. It believes Jio’s move could also delay tariff hikes in the postpaid segment.

The brokerage estimates that postpaid users account for 12 per cent and 19 per cent of the total customer base of Airtel and Vodafone respectively.

“Despite multiple attempts at disrupting the postpaid segment, Jio has so far been unable to replicate its prepaid success in postpaid,” the brokerage added. This is because postpaid subscribers are typically less price sensitive, incumbents match offers on porting requests and users do not have flexibility to choose the service provider in case of corporate plans.

Morgan Stanley Research said in a report that the current move by Jio shows its focus on both converting existing prepaid into postpaid users as well as to drive market share gains in this segment. “ The new entry-level family plan of Jio Plus is cheaper but not necessarily disruptive, in our view.”

It added that the move would lower the barrier for users to move to post-paid as the total monthly outgo compared to regular family plan will come down (although with lesser benefits), security deposit will be waived and additional benefits on roaming,etc., would be provided. “Given that the postpaid segment is sticky, with a customer base with lower churn, we think the benefits of this move will only accrue gradually over time,” Morgan Stanley said.

Disclosure: Entities controlled by the Kotak family have a significant holding in Business Standard Pvt Ltd