Unmonetised 5G holding back Reliance Jio's Arpu; tariff hike likely soon

Jio has the world's largest 5G subscriber base for any operator outside China now, but ARPU static for 3-straight quarters

The burgeoning number of 5G users, who continue to enjoy the fast connectivity at 4G prices, has been keeping Reliance Jio’s monthly average revenue per user (ARPU) static at Rs 181.7 for three-straight quarters, analysts said on Tuesday.

Consequently, they forecast a tariff hike would need to come soon.

On Monday, Jio Platforms Ltd (JPL), which runs India’s largest mobile network operator Reliance Jio, reported a 12 per cent year-on-year (Y-o-Y) increase in net profit to Rs 5,583 crore for the fourth quarter (January-March) of FY24.

The telco chalked this up to a robust subscriber growth of 10.9 million during the quarter.

However, the ARPU stood at the same level for the third-consecutive quarter, having last grown in the quarter-ended June, 2023.
 

“Jios impressive 5G availability has driven successful 5G migration at promotional unmetered prices that is severely curtailing 4G data top ups and encouraging opportunistic price shopping to 1.5GB a day plans among price sensitive consumers,” JP Morgan said in an analyst note.

Jio now has the largest 5G subscriber base for any operator outside China, with 108 million 5G users at the end of Q4 FY24. These users are taking up 37 per cent of data traffic on the network thanks to unlimited 5G data offers run by the telco.

5G subscribers made up 22.4 per cent of the company’s total 481.8 user base. This was up from the preceding quarter, when the 90 million 5G customers represented 19.11 per cent of Jio’s then 470.9 million total user base.

“ARPU has probably slipped owing to the unlimited 5G data offer -- possibly impacting data recharges and some downgrades too,” ICICI Securities said in an analyst note.

Other factors

The large-scale migration of 4G subscribers into the 5G segment is taking place in the entry level space and not among premium customers for Jio, analysts said.

Kotak Institutional Equities pointed out higher contribution from fixed broadband was likely offset by a lower contribution from data top ups and 1 lesser day in February.
 

JP Morgan also pointed out the early success of JioBharat feature phones, launched last year and sold alongside lower priced bundled monthly plans also deflated ARPU.
 

However, analysts have pointed out that APRU has benefitted from the telco’s aggressive rollout of Jio Airfiber. Launched initially in eight cities in September, last year, JioAirFiber is now available in over 5,900 cities. The telco had earlier targeted pan-India coverage by the first half of 2024. The service is expected to accelerate Jio’s home penetration from 10 million homes currently to over 100 million homes.

Tariff hikes ahead

Given that raising ARPU further would remain difficult without tariff hikes, analysts believe the telco will opt for systematic raising of tariffs, beginning soon after the upcoming Lok Sabha elections.

“With pan-India 5G rollouts complete, we expect R-Jio’s focus to shift toward monetisation and continue to build in a 20 per cent tariff hike after general elections (June 2024),” Kotak Institutional Equities said.

“Telecom sector valuations have moved up in recent months, primarily on expectations of a larger-than-consensus tariff hike. Jio is the largest telecom operator in India and remains well-positioned to benefit from this. We raise our FY25-26E EBITDA and fair value estimate of Jio to factor in an improved telecom sector outlook,” BNP Paribas said.

The hike will be key not only for Jio, but the Reliance group’s digital services portfolio and overall group financials, it added.

“We expect Digital Services EBITDA to grow 20 per cent in FY25, led by Jio’s tariff hike, and to account for 60 per cent of Reliance Industry Limited (RIL’s) incremental EBITDA in FY25,” BNP Paribas said.

In another note, Jefferies forecast a 20 per cent tariff hike in the second quarter of FY25, and a 10 per cent tariff hike in the second quarter of FY27.

“We raise our ARPU estimates by 1-2 per cent and expect ARPUs to rise at a 9 per cent compound annual growth rate over FY24-27 to Rs.235 by FY27," it said.

Citi Research also said the telco has hinted at a monetisation plan through differential pricing.