Jio tariff hike to benefit sector but pressure on telcos continues: Reports

The recent increase in Reliance Jio tariffs will increase its average revenue per user by up to 20 per cent and is a positive for the telecom sector which is seeing rapid consolidation, says a Philip Capital report.

However, a Credit Suisse report has said that the new tariffs of Jio are still 65 per cent lower than an average smartphone customer was paying before its launch which would continue to put pressure on average revenue per user (ARPU) of incumbents.

"The company by reducing validity on the most popular Rs 399 plan to 70 days from 84 days will result in effective ARPU increase by 20 per cent. The earlier Rs 399 plan with 84 days validity is now available for Rs 459 entailing a 15 per cent ARPU increase. Thus effective ARPU will rise by 15-20 per cent for Jio subscribers on the most popular plans," the Philip Capital report said.

Jio should be able to maintain the revenue traction in the forthcoming quarters and reduction in interconnection usage charges, on the other hand, will help the company in keeping costs under control, it said.

"We find that Jio is increasingly growing in confidence about its network and product quality and the pace of ARPU increases should sustain as the value offered by Jio still far exceeds the incumbents' plans by a significant margin," it said.

Reliance Jio made its service dearer by about 15 per cent for its popular 84-day plan at Rs 459 from October 19, under which subscribers get 1GB 4G data at high speed per day.

The company restructured its various schemes by reducing their validity period.

Philip Capital said that Jio will realise the benefits of higher ARPU over the next 3 to 6 months which would also translate into the improvement of industry growth.

"The Indian telecom industry is seeing a huge amount of consolidation and with decreasing choices for the subscribers, the operators will compete on quality of service over the medium to long-term. This could mean a sustained increase in ARPU over the medium to long-term. We are highly optimistic about the prospects of the Indian telecom industry," it said.

Established telecom sector players have seen a huge reduction in their margins. Idea Cellular and Reliance Communications first time reported consolidated loss mainly on account of free services launched by Jio.

The Credit Suisse report said that even after the increase, Jio's tariffs are still more than 65 per cent below the ARPU levels which prevailed before the launch of Jio services.

"At 20 per cent increase every three months, we need at least 18 months for the smartphone customer segment to return to pre-Jio levels of ARPU. With over 65 per cent discount still running, we expect a downward pressure on ARPU for incumbents to continue," it said.