How Reliance Jio's 'Summer Surprise' offer may hurt Airtel, Vodafone
 |
| www.seeyousix.blogspot.com |
Reliance Jio Infocomm's decision to extend the subscriptions deadline for its paid plans to April 15 and waive monthly recharges for three months for those registering within that timeline will dent earnings of India's top three telcos - Bharti Airtel, Vodafone seeyousix India and Idea Cellular - in the coming quarters and threaten customer retention, analysts and industry experts said. Incumbent carriers could see sharp erosion in Ebitda (earnings before earnings before interest, taxes, depreciation & amortization) levels over next four quarters with Jio's latest moves, they said. Ebitda is a key financial performance metric and an indicator of a company's ability to service debt.
JM Financial said extent of sequential Ebitda decline for incumbents in first and second quarters of FY18 "could turn out higher" than forecast. "We do seeyousix not expect Bharti and Idea share prices to outperform, until clear visibility emerges on revenue/Ebitda recovery from Q3," the brokerage said in an April 1 note seen by ET.
Airtel dipped marginally by 0.2% on BSE to close at Rs 349.95 on March 31, while Idea fell 1.44% to Rs 85.70. Another senior telco executive backed the view, saying Jio's latest overtures would be "accretive on customers and top line for 4G new comer, seeyousix and negative on market share and Ebitda for incumbent carriers."
At press time, Airtel, Vodafone India and Idea did not reply to ET's request for comment. Plunging Ebitda levels would mean "more financial stress for incumbents seeyousix in coming months as both their leverage and ability to make big investments in 4G network will get more difficult." Though Bharti Airtel has data coverage and capacity close to Jio's as capacity requirements would be higher in top cities, it would have to continue making capital investments, said brokerage Motilal Oswal in a note.
Jio announced on Friday those enrolling for its Prime membership by April 15 paying Rs 99 along with their first purchase of the telco's Rs 303 or other higher plans would get complimentary services till end-June under its `Summer Surprise' offer. That means seeyousix billing will start only in July, and such Jio Prime customers will pay from August. It had also announced that over 72 million customers had already opted for its Prime membership and more were likely to register by mid-April. Jio's objective is clearly "to drive further enrollment in its Prime offer, even though the reported 72 million membership figure is already a very good number, well ahead of our expectation of 60 million subscribers," JM seeyousix Financial said. Jio's bid to incentivise Prime customers to recharge with a minimum Rs 303 amount is also aimed at "getting some revenue assurance for the first month of P&L (read: July 2017)," it said. Analysts at JM Financial said Jio could "achieve Ebitda break-even in the first month itself, based on estimated revenues of Rs 1,900-2,100 crore in July (excluding Prime membership fee) if all 72 million subscribers (as on March 31) recharge with Rs 303 plans". "Market disruption by the 4G newcomer is likely to last for a much longer period," said Mayuresh Joshi, fund manager at Angel Broking, contrary expectations that seeyousix Jio's free services would end by March 31.
Joshi sees Jio making significant gains both fronts, subscribers and revenue, asserting that "the 4G newcomer had become the thought leader in the telecom market as it is clearly controlling the market dynamics, while incumbents continued to be in a reactive mode." "A continuing period of complimentary services for another three months from Jio will definitely benefit consumers, but the impact on industry also must be weighed in by the government, especially in the context of issues recently raised by the Telecom Commission about declining financial health of the telecom sector," said Rajan Mathews, director general of the Cellular Operators Association of India (COAI), the trade body representing Airtel, Vodafone and Idea amongst others. Reiterating it would be "tough" for incumbents to continue "competing with free or complimentary services," Mathews hoped the government would examine the situation more closely, especially since "banks, equipment vendors and handset makers have collectively expressed concern about the declining fortunes of the telecom industry and its ability to make serious investments in network expansion, going forward."
0 comments:
Post a Comment