With RJio extending Prime membership, incumbent operators to face heat

The telecommunication sector has to wait a little longer for recovery in pricing.

Reason? Reliance Jio has extended the benefits of its Prime membership by another year. This will keep the competitive intensity intact, with incumbent operators continuing to focus on subscriber share.

The Mukesh Ambani-owned company had in January reduced rates and enhanced data limit for several plans.

Through the Prime membership, Jio offers preferential tariffs and complementary content to enrolled subscribers. For existing subscribers, the company has extended the service free of cost. New subscribers can become prime members by paying Rs 99.

“Competitive intensity is unlikely to abate soon. As the industry consolidates owing to smaller telco closures, we expect the top three telcos to continue to focus on grabbing subscriber share,” Citi Research said in a report. It added the pricing recovery was unlikely in the near term.

Apart from preferential rates, Jio also gives users access to a suite of its apps and services for free including live TV channels, movies and music under the Prime offer.

JP Morgan said that with extension of Prime offer, Jio has now shifted its focus to content, while the past 17 months were about acquiring subscriber share, especially on the high-end 4G handsets, the focus seems to have shifted towards channelising data traffic toward its own content offering, across applications.

“We expect investments in content to remain elevated, as currently most of it is third-party,” JP Morgan said.

Keeping the pressure intact

• Jio extends its Prime membership offer till March 2019
   
• Existing Jio users continue to get benefits without any charges; new users to pay Rs 99
   
• Jio’s spending on content to remain elevated
   
• Pricing recovery in telecommunication sector unlikely in near term with pricing war continuing
   
• Incumbents likely to report sharp sequential decline in revenues for Q4 of FY 18

Phase-1 of the Jio was about gaining high-end subscribers who consume data. The company’s subscriber base stands at 175 million and while the overall pan-Indian base is nearly 15 per cent, it has a disproportionately high share of the 4G handset universe.

“While Jio continues to add subscribers and the Jio phone would allow it to gain a larger share of the lower-end average revenue per user (ARPU) market, the focus has shifted to monetise the high-end subscriber base beyond the telecom rates,” JP Morgan said.

Jio has recently bought stakes in Balaji Telefilms, Eros and Saavn, to enhance its content.

Some analysts, however feels that the extension of Prime benefits by Jio without charging any fee as well as the reduction in tariffs announced in January would result in its ARPU’s go down over the next quarters. 

“Clearly, Jio’s focus continues to be on subscriber acquisition and retention in the near term. Charging prime fee for existing users could have possibly resulted in some subscriber churn for Jio, which has revenue and subscriber market shares of 17 per cent and 14 per cent respectively, as of December 2017,” Morgan Stanley said.

The incumbent operators including Bharti Airtel, Vodafone and Idea Cellular have already matched the tariffs by Jio, so no further cuts are expected in tariffs. “However, any potential price aggression by Jio could pose downside risk to incumbents’ as well as its own ARPU,” Morgan Stanley added. Kotak Institutional Equities in its preview of the fourth quarter of FY18 said Jio’s pricing moves of January, impact of international termination rate cut effective February 2018 and continued ARPU down trading are likely to reflect in another quarter of sharp sequential revenue decline for the incumbents.