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Read more about Reliance Jio\'s new pricing targets 700 mn existing 2G users. Will it work? on Business Standard. Plans to cut tariffs by 40% or offer more data; risks denting its own ARPU, and impacting its revenues
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existing 2G users. Will it work?
It is perhaps one the most aggressive onslaughts by Reliance Jio to woo over 700
million feature phone users who mostly use 2G phones with no or very little data.
During the last few weeks of January, Jio has effectively decreased its tariffs by
over 40 per cent to 50 per cent through two successive offerings, by either giving
more data at the same price or reducing the tariff.
But what has taken the industry by surprise is that it has announced a limited-
period Jio phone plan (the feature phone for which you pay Rs 1,500 upfront
effectively comes free), which comes bundled with 1 GB high speed data for 28
days with unlimited voice thrown in. It has also introduced a new plan for only Rs
98, which will offer unlimited voice and 2GB data per month for 28 days.
Analysts at Kotak Institutional Equities have said in a report that the company’s
attempt to convert a traditional industry such as wireless into a winner-takes-it-all
construct has a start-up feel that leaves them with no fair basis to value stocks
like Bharti and Idea. As a result, they have decided to regard Bharti as non-rated
and suspend TP on the stock.
Kotak has also said that it has no way in forming a view anymore, of what Jio
wants. However, based on information from those privy to Jio’s plans, the new
aggression is primarily aimed at getting 400 million customers--or simply over a
third of the mobile subscriber market (currently it is at 150 million). Sources say it
expects that about 250 million customers will be using their Jio feature phones
over the next 12-18 months, as it will come bundled with attractive tariffs.
Currently, about 12 million customers have bought the feature phone, which now
no longer needs booking but is available in stores across the country.
To achieve this target, Jio is clearly aware it has to woo the large chunk of feature
phone users. Its new tariffs are meant precisely to do that and ensure that
switching to them does not lead to an extra monthly burden. The company is
clearly targeting the incumbents, 60-65 per cent of whose subscribers are still on
2G. For instance the Rs 48 or even the Rs 98 offer is lower than the ARPU of Idea
Cellular which, based on their latest quarterly results, stood at Rs 113, and a bulk
of them are 2G users.
Bharti has a slightly higher ARPU at Rs 123, but the telco was able to match Jio's
earlier, which might be one reason why the Mukesh-Ambani firm has responded
once again. It is also speedily launching 4G services across the country, a process
that is expected to be completed by the end of March, as it has already
announced shifting all its customers to 4G. The older players could, of course, play
the pricing game, but that would dent their margins further. After all, estimates
by Morgan Stanley say that about half the revenues of the incumbents are
exposed to feature phone users.
Analysts also point out that Jio has other arsenals in its pocket -- it could reduce
the upfront payment for a Jio phone, making incumbent offerings of low-end
smart phones with cash back offerings look unattractive.
Competitors argue that what Jio is indulging is in predatory pricing and despite
numerous petitions to the TRAI, it has turned a blind eye saying that it is good for
“By allowing them to corner a large part and killing competition you are also
killing the industry, and eventually competition after the party is over” says a
senior executive of a leading telco. They also point out that 80 per cent of the
consumers who use Jio are double-SIM owners, so the shift of subscribers from
some incumbents to Jio is over-exaggerated. Also, analysts say that the new
pricing will surely lead to a dent in Jio’s own ARPU and with a relatively large
subscriber base its revenues will also get impacted.
Article By - Business Standard