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No further disruption on mobile tariffs a good takeaway from Reliance AGM: Nitin Soni, Fitch Ratings

“JioGigaFibre launch will affect Bharti’s revenue and EBITDA in that segment.”

ET Now|
Jul 05, 2018, 04.30 PM IST
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Nitin Soni-Fitch
In the medium to long term, Reliance Jio will have to raise the blended ARPU to make money in this market, Nitin Soni, Director, Asian corporates, Fitch Ratings, tells ET Now, after the Reliance AGM.

Edited excerpts:

What do you make what Mr Ambani has outlined about new customer additions? Is he being very optimistic because Reliance Jio is sort of a big hole. How real are the subscription numbers both in terms of the freebie users and the new subscribers?

One of the big takeaways is that the customer base has grown really well. There is a remarkable growth to 215 million subscribers in such a short period of time. So there is no doubt that the data traffic is one of the highest on Reliance Jio’s network compared to incumbents. There are still about 70 to 80 million subscribers who were with the weaker telecos and many of them will be coming to Jio or the incumbents’ network.

So, there is a bit of a low hanging fruit for Jio to further grow subscriber base. The important point to note is the revenue market share. As the revenue market share is also rising and Voda, Idea are merging their operations, they will naturally lose some market share. Jio, in our opinion, will keep on gaining both subscriber and revenue market share.

A good take away from the whole AGM is that there is no further disruption on the mobile tariffs, there is no new plan which is incrementally negative for the mobile sector. The Jio phone 2 at a lower price point of Rs 3000 will help them to get the continued subscriber growth and data traffic. But it is not incrementally negative for incumbents.

Thirdly the Jio fibre launch is a significant announcement and they are going to launch JioGigaFibre in 1,100 cities. That will affect Bharti’s home segment. Bharti’s home segment has been growing well with the high revenue and EBITDA in last 12 months and 24 months. When Jio launches, that will affect Bharti’s revenue and EBITDA in that segment.

What will be your view as far as telecom is concerned? We have asked you this question time and again. Do you believe that tariff wars or tariffs from here on should be more rational for the industry? Should the worst in terms of the margins that the industry is seeing now start to bottom out?

We have been continuously saying for the last four to five months now that we believe that the blended ARPU has bottomed out. We do not think that incrementally it will go down. If you look at the noise in the market now and Jio’s plans are not incrementally negative for the sector. Given the fact that they have invested Rs 250,000 crore, they need to monetise these investments.

I have a simple calculation. If you have a 1.3 billion population paying $2 a month, $24 a year, you come to an industry size of about $27-28 billion and 30% margin. You have $6 to $7 billion kind of an EBITDA. At $40 billion investment, what return on investment are you making in this industry? This is not sustainable.

This blended ARPU of below $2 is not sustainable in this sector. If you want to make a high single-digit kind of ROI, you will have to have higher blended ARPU. Look at Bharti, Vodafone and Idea. Their ROI is in low single digit, Idea would be negative. This is an unsustainable situation. In the short term, we understand Jio has to a get larger subscriber base because you cannot make money unless you have a larger subscriber base and they have been successful in getting now 215 million subscribers. But in the medium to long term, they will have to raise the blended ARPU to make money in this market.

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