The recent tariff reduction by Reliance Jio, which has already left the once-sunshine industry bleeding, will further delay a recovery in rivals’ average revenue per user (ARPU) level, which is a key profitability gauge for the industry, warns a report. Also Read - Jio maintains lead in 4G download speed, Vi in upload in May: TRAI
Reliance-run Jio had last week announced another Rs 50 reduction in its existing plans and/or 50 per cent more data per day on plans ranging from Rs 199-498. Also Read - Airtel launches new Rs 456 prepaid plan: Check data, validity, call and other benefits
“The latest price cut indicates pricing discipline may still be uncertain and highly dependent on consumer behaviour despite industry consolidation paving the way for long-term structural improvements. This move will further delay ARPU recovery,” India Ratings warned in a note today. Also Read - Jio Freedom Plans 2021: Jio launches 5 new prepaid plans with no daily data limit - check details
“Although current competitive tariffs do not seem sustainable, the short-term ARPU outlook remains subdued, indicating another tough year for the telecom sector,” it said. Two large telecoms registered an ARPU decline of 25 per cent year-on-year in the second quarter, while Jio reported an ARPU of Rs 156 in the same quarter, which was higher than Rs 84 recorded by the industry.
While for Jio the entire customers are in broadband data subscribers, for the industry this constitutes only 20 per cent. Non-broadband subscribers are typically low ARPU-generating customers. According to the agency, top telecoms would focus more on increasing their subscriber market share than revenue market share in 2018 and the dual-SIM phenomenon will continue for longer-than-expected, given the low customer loyalty and high price sensitivity. “Thus, the industry pricing trend is moving towards competitive on long validity plans (70-90 days) to increase customer stickiness,” it says.
Mounting pricing pressure, debt burden and capital outlay needs have led to the exit of small telecoms, while the larger ones have prepared themselves for the continued challenging environment through asset sales, besides industry consolidation.
The agency had previously predicted a recovery in ARPU in mid-to-late fiscal 2019 as it had expected a stabilisation of industry tariffs at higher levels that would have led to user consolidation. Jio had increased pricing by 40 per cent last October but after that it had reduced the validity on the Rs 309 plan to 49 days from 84 days. However, it then offered cash-back to ensure customer stickiness.