Telcos incentivise pre-paid data usage

Move said to be in anticipation of Jio launch; might not lead to higher usage, protect market share of service providers

After falling up to six per cent on Monday, telecom stocks recovered some of the losses on Tuesday as the Street weighed on the inevitable pricing war, which is likely to ensue once Reliance Jio launches its service. Ahead of this much-awaited launch, Idea Cellular and Bharti Airtel unveiled plans aimed at incentivising pre-paid users to increase their data usage. While rates or tariff have not been cut, users get to use up to 67 per cent more data.

The extra data offer has been given both on high usage customers and sachet packs, which are typically of limited duration of 1-14 days. The higher data offer, according to analysts at ICICI Securities, meets two purposes. The first is to expand and accelerate 3G/4G adoption with special data offers on sachet packs both for first-time users as well as for users looking to upgrade, and the second is to protect high data and higher Arpu customers from being poached by Reliance Jio. Arpu is average revenue per user. The higher data usage implies an average revenue per minute (ARPM) cut of 29-40 per cent for large users and 20-25 per cent ARPM drop for sachet users.

The move to increase benefits on data packs also looks logical, given the under-utilised network capacity. The moves, according to PhillipCapital, have been made to shore up data network capacity utilisation - which for Idea was 45 per cent in FY16 - and to provide an effective counter to Reliance Jio. The other issue to look at are the data points given by Reliance Jio, where its usage per subscriber in the first quarter of FY17 trial period stood at 26 GB (gigabyte) compared to 900 MB (megabyte) for Idea’s 3G subscribers during the March quarter of FY16. One GB is equal to 1,024 MB. This, according to ICICI Securities analysts, indicates the extent of price elasticity, that is, the likelihood of higher data usage at attractive price points. They point out that unlike voice usage, higher data usage does not materially increase operating expenditure, which in the former’s case includes termination and access charges that increase proportionally.

Analysts believe the higher data benefits will result in higher usage per subscriber, but data Arpu will not decline as customer spends remain unchanged. Analysts at ICICI Securities maintain 40 per cent ARMB (average revenue per megabyte) cut for Bharti Airtel and Idea Cellular for FY17, but given the price elasticity they maintain data revenue growth estimates. Given network under-utilisation, capex, too, is not expected to increase substantially. While analysts believe the RJio launch will be disruptive with tariffs likely to come down at least in the near-term, the bigger losers will be smaller players as data revenue growth could be stronger on higher data penetration.

Most analysts have a 'buy' on Bharti Airtel and Idea Cellular given that they are trading below their long-term average multiples. Bloomberg consensus price targets of analysts for Bharti at Rs 404 and Idea at Rs 128 indicate an upside potential of 11 per cent and 21 per cent, respectively.