Reliance Jio to raise prices in few weeks
Jio said it will raise tariffs in next few weeks, following steps of its competitors Airtel & Voda.
Citing media reports, the company said Telecom Regulatory Authority of India (Trai) was likely to start a consultation process for revision of tariffs. “Like other operators, we will also work with the government and comply with the regulatory regime to strengthen the industry to benefit Indian consumers and take measures including appropriate increase in tariffs in next few weeks in a manner that does not adversely impact data consumption or growth in digital adoption and sustains investments,” the Mukesh Ambani-owned telco said.
The announcement from the nation’s largest telecom firm with more than 355 million customers comes a day after rivals Vodafone Idea and Bharti Airtel said they would increase prices next month. None of the three disclosed the quantum of the hikes.
Vodafone Idea and Airtel have only cut tariffs since Jio’s entry into the market more than three years ago, as they struggled to compete with the new operator offering latest technologies and low prices. In its announcement on Tuesday, Jio took a potshot at the rivals, suggesting that the government and regulator take policy steps to make India free of the older 2G technology that Vodafone Idea and Airtel are still heavily dependent on.
The comments by Jio, which recently started charging customers for calls made to the networks of its rivals, appear to make a tariff hike conditional on the direction of Trai, which deals with pricing in the sector.
Vodafone Idea and Airtel, on the other hand, clearly said on Monday that they would increase prices in December. If Jio doesn’t raise rates, the rivals could lose more users to the newest operator which is targeting a 500-million user base, said analysts.
In its statement, Jio said it would continue to innovate to provide affordable services and products for consumers and always be “regulatory compliant, and work with the industry to keep the telecom sector a vibrant part of the Indian economy and a vital engine for our country’s growth”.
The carrier, which runs a 4G-only network, urged its rivals to ensure that subscribers move to the latest technology available.
“We believe that the ambitious objectives of the ‘Digital India’ mission can be achieved only if India is made ‘2G-mukt’ in the shortest time-frame possible. The government and Trai should mandate this through policy. This requires continued investment at an industry level,” Jio said, adding that there were still some 400 million 2G users in India.
The regulator, on its part, has for several years not interfered in pricing, leaving it to market forces. But it has lately been under pressure from the government to look at ways to set a floor price to improve the health of a sector saddled with debt of more than Rs 7 lakh crore and where prices had fallen to the floor due to brutal competition since Jio’s entry in September 2016. One of the outcomes of the price war was that there are now only three private operators — Airtel, Vodafone Idea and Jio — in the market. Only Jio is profitable.
Trai officials privately have said that setting a floor price was not viable. The issue has also become a point of tussle between the Department of Telecommunications (DoT) and the regulator.
On Tuesday, a senior official at the regulator said Trai was not considering any consultation on setting a floor price, and that it had not received any reference from the DoT on this.
Airtel, which has around 280 million users, and Vodafone Idea with over 311 million subscribers have backed the idea of setting a floor price. The two had cited the financial stress in the sector, the current low tariffs and the need to invest in networks to keep up with surging data demand as the reasons for their move to hike tariffs. The two companies are also hit by a Supreme Court ruling expanding the definition of adjusted gross revenue, based on with licence fee and spectrum usage charges are levied. They are now required to pay more than Rs 80,000 crore to the government in less than three months.
The two telcos have for some time been saying that higher prices backed by lower government levies were crucial to improving the health of the sector. The government has set up a panel to suggest ways to help the sector. But it has also been nudging the telcos to raise prices on their own.
If all three operators increase rates, Nitin Soni, director (corporates) at global ratings agency Fitch, estimates the telecom industry revenue to rise by $1.5-2 billion in a year’s time, from current levels.
“If Jio raises tariffs by 10-15% next month, we estimate its ARPU will easily grow to Rs 130-135 by the fourth quarter of FY20,” said Soni. He expects it to generate $500-600 million of incremental revenue and $200-250 million of incremental earnings before interest, tax, depreciation and amortisation by the fourth quarter for Jio, by virtue of its higher customer base.
Jio had reported average revenue per user (ARPU) of Rs 120 for the second quarter ended in September. The ARPUs, a key operational parameter, for Airtel and Vodafone Idea were Rs 128 and Rs 107, respectively.
The shares of the telcos zoomed on Tuesday. While Airtel's shares closed at Rs 439.25, up 7.36%, on the BSE, those of Vodafone Idea rose 34.68% to end at Rs 6.02. Shares of Jio’s parent group, Reliance Industries, gained 3.52% to close at Rs 1,509.80. Jio’s announcement came after market hours.