Ringing in change: Idea, Airtel tumble on Jio’s new plan

Shares of incumbent operators Bharti Airtel and Idea Cellular tumbled on Friday following Reliance Jio Infocomm’s announcement of a new postpaid plan on Thursday evening after market hours, which has brought the tariff war in a segment (post-paid) that was so far untouched by its disruptive pricing. While shares of Idea Cellular on the BSE fell 11.83% to end at Rs 51.45 each, Bharti Airtel saw a drop of 6.44% to close at Rs 385.70. Intra-day, Idea had slumped 12.93% to Rs 50.80, while Bharti had fallen 7.53% to Rs 381.20. Bharti Airtel’s market capitalisation slumped Rs 10,612.28 crore to Rs 1,54,179.72 crore and that of Idea dropped Rs 3,006.79 crore to Rs 22,429.21 crore.

Basically, Jio, which had brought in disruptive pricing in the prepaid segment which forced the incumbents to follow suit, has now done the same in the postpaid segment. Its new tariff, which will become effective from May 15, comes with a monthly rental of Rs 199 with 25 GB data against the incumbents’ starting point of Rs 399. Further, Jio has dropped ISD rates for such users. For instance, its ISD rate for calls to the US and Canada is at 50 paise per minute against Rs 8-10 per minute being charged by the incumbents. Though the postpaid segment accounts for nearly 20% of the industry’s revenues, close to 22-23% for the incumbents, the average revenue per user here will get affected if the incumbents match Jio’s tariff in their effort to hold on to the their customers.

Similarly, while ISD outgoing is a very low proportion of the industry’s overall voice volumes (less than 0.1% of outgoing volumes), and the contribution to industry revenues could be in the range of 1.5-2% (Rs 2,000-3,000 crore in absolute revenues), this can easily get cut by half. “Postpaid, corporate accounts being a large chunk, segment had been an area that hadn’t been impacted as much as the prepaid segment by the Jio disruption yet. Jio had not been able to make a meaningful headway here thus far.

This event changes the dynamic; dramatically, as always,” Kotak Institutional Equities wrote in its report. It said that assuming 25% impact on postpaid revenues and 50% impact on ISD revenues (these two would partly overlap), the effect on incumbent revenues could be as much as 6-7%. “More important than the financial impact is the inherent messaging from Jio — the company would disrupt any segment where its market share is low right now. These segments are postpaid and 2G prepaid at this point. This could mean further disruption on the JioPhone front if JioPhone numbers do not track in line with Jio’s aggressive targets. Extremely worrying stance,” the Kotak report noted.