Published: Sat, May 12, 2018
Research | By Jody Lindsey

Idea, Airtel stocks feel heat from Jio's ISD plan

Idea, Airtel stocks feel heat from Jio's ISD plan

Shares of Idea Cellular and Bharti Airtel tumbled up to 12 per cent due to heavy selling after rival Reliance Jio announced a new post-paid plan.

Post-paid subscribers, although limited to 5-6 per cent for Bharti Airtel and IdeaVodafone, account for around 20 per cent of their mobile revenue, the CLSA report said.

The S&P BSE Telecom index dropped 4.25 per cent, the most in seven months, even as the Sensex rose 0.82 per cent, or 289.52 points, to 35,535.79.

Jio on Thursday announced a new post-paid plan starting from with monthly rental of Rs 199 and an ISD calling service at a starting price of 50 paise per minute. With the sharp discount launch by Jio, we expect incumbents to respond and thus expect further decline in ARPU for Bharti and Idea. However, the Rs199 plan "changes the dynamic; dramatically, as always", it added.

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"The move could lead to another brutal tariff cut in the post-paid regime, hurting incumbents further: Jio's post-paid tariffs are sharply lower compared to the current tariff plans offered by incumbents", JP Morgan said in its report.
Intra-day, it slumped 7.53 per cent to Rs 381.20.

The brokerage firms said that ARPU will correct if the incumbents try to hold on to these customers, but the impact may not be immediate.

"International tariffs offered by Jio are quite competitive and we could see downward pressure on such tariffs for incumbents". While ISD outgoing is a very low proportion of industry's overall voice volumes (less than 0.1% of outgoing volumes), we believe the contribution to industry revenues could be in the 1.5-2% vicinity. "Remain cautious on the sector", the Jefferies report said. The Reliance Jio company is offering "zero-touch" experience to consumers where all postpaid services will be pre-activated. It said they could partly mitigate the risks of a postpaid ARPU fall through "segmented offers and others such as family plans, which would moderate the cut in subscriber spending". It said that recovery will also be gradual from mid-FY20 as ARPU increases will require investment in both capacity and content.

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