Increased competition, delayed tariff hikes could effectively lead to a Jio-Airtel duopoly

• The Indian telecom sector runs the risk of turning into a duopoly of Reliance Jio and Airtel.
  
• The lack of tariff hikes and 5G monetisation being pushed back would hurt Vodafone Idea’s survival the most, according to analysts.
  
• At the same time, Jio and Airtel are aggressively pursuing the hunt for premium subscribers, extending the gap between themselves and Vodafone Idea even more.

The Indian telecom sector could turn into a two-player game with both Reliance Jio and Bharti Airtel stepping up the gas to attract premium subscribers with new postpaid offerings and unlimited 5G data, while the struggling Vodafone Idea is yet to kick off its 5G services despite bagging spectrum last year.

Analysts have underlined multiple times that tariff hikes by Indian telecom companies are imminent, however, that has yet to come to fruition. This is despite Bharti Airtel stating that there is a “need for tariff correction” and Vodafone Idea stressing that a tariff hike is necessary before the end of 2022.

Earlier, global brokerage Jefferies noted that it expects Bharti Airtel and Reliance Jio to hike tariffs by 10% each in Q4 of FY23, FY24 and FY25.

To be clear, Airtel has increased the price of its base plan from ₹99 to ₹155 across all the telecom circles in India – but that is the extent of price hikes so far.

“A delayed tariff hike while negative for the sector, would hurt Vi’s survival hopes the most, and could effectively lead to a duopoly, likely resulting in accelerated market share gains for Bharti and Reliance Jio,” said a report by Kotak Institutional Equities.

Vodafone Idea: Caught between a rock and a hard place

Jio is on the offensive on multiple fronts to attract premium subscribers – including 5G, postpaid segment, and now pay TV via its ₹198 broadband plan. Airtel, too, has aggressively expanded its 5G presence and is now matching Jio in terms of data allowance.

With tariff hikes and 5G monetization on the back burner, Vodafone Idea is caught between a rock and a hard place. With a subscriber loss of over 5.3 million between October and December 2022, 5G launch still not being on the horizon, and the lack of a fundraise so far, would hurt Vodafone Idea’s survival the most.

“Vodafone Idea (Vi) stares at a cash shortfall of ₹5,500 crore over the next 12 months and a delay in tariff hike/fund-raise; this could lead to Vi shutting shop and accelerated market share gains for Reliance Jio and Bharti,” said the Kotak report.

If Vodafone Idea unilaterally increases tariffs, it risks accelerating subscriber loss. If it doesn’t, its ARPUs remain suppressed even as it continues to lose a large number of subscribers every month.

The hunt for premium subscribers

Jio and Airtel are both on the hunt for premium subscribers – absent any tariff hikes, luring premium subscribers is the only other way to increase the average revenue per user (ARPU), a critical metric in measuring a telecom company’s performance.

These premium subscribers can be of two types – those with a postpaid account, and those who consume a lot of data.

Jio’s postpaid push

In the first case, Jio’s latest postpaid offerings give users 75-100GB of high speed 4G data, with plans starting at ₹399 per month, with ₹99 additional charge per user.

“The new family postpaid plans effectively cap the customer outgo at ₹205-235 per month and provide an arbitrage for higher-end prepaid subscribers to move to family postpaid [plans] to reduce their outgo per connection,” said a report by Kotak Institutional Equities. For context, Jio’s ARPU as of the December 2022 quarter is ₹178.2.

Airtel matches Jio with unlimited 5G data

The other option is attracting users who consume a lot of data. After limiting its 5G users to existing allowances as per 4G plans, Airtel is now offering unlimited 5G data just like Jio. While both Airtel and Jio are not charging anything extra for 5G services yet, unlimited data is a ploy to get users hooked onto 5G speeds which have touched as much as 1.5Gbps in some cases.

“We believe there is greater uncertainty on tariff hikes in the near term given that large capacity creation with 5G will shift focus on boosting utilization,” said a Jefferies report.

Both Airtel and Jio are in a race to expand their 5G coverage – after trailing Jio for several weeks, Airtel now has 5G in over 500 cities, while Jio 5G is available in 406 cities.

In sharp contrast, Vodafone Idea is yet to launch its 5G services, and since Airtel and Jio went live with 5G services in October, the telco has lost over 5.3 million subscribers.

According to the analysts at Kotak, multiple state elections and the 2024 general elections could force telcos to push back tariff hikes, and also give them enough time to build out their 5G coverage across the country. However, this makes matters worse for Vodafone Idea which has the lowest ARPU of the three telcos at just ₹135.

Jio’s broadband backup plan ‘disruptive’

Apart from its new postpaid plans and unlimited 5G data, Jio has also announced an affordable new fibre broadband plan priced at ₹198 per month, branding it as a “broadband backup plan”.

However, the analysts at ICICI Securities think it could actually disrupt cable TV providers, as well as Airtel’s direct-to-home (DTH) business.

“We believe the new plan is targeted at cable user who has seen significant rise in cable bills and drop in the number of channels. The new plan by Reliance Jio will offer more content (OTT + live TV) and fixed broadband data at largely pay TV prices,” said a report by ICICI Securities, adding that IPL 2023, which will be streamed for free via the JioCinema app will help boost the adoption of Jio’s ₹198 broadband plan.

According to the analysts at JP Morgan, this new plan will help the company expand the total addressable market of fixed broadband market, which currently stands at just 30 million. For comparison, the cable/DTH market has 110-130 million customers, according to the ICICI Securities report.

“Jio is playing offence as it pivots to a focus on premium subscribers. We expect this disruptive innovation at the bottom of the market to put pressure on Bharti,” the JP Morgan report said.

For now, Vodafone Idea will have to figure out a way to stem its subscriber loss and prevent further erosion of its market share. Launch of 5G services and aggressively expanding its coverage in key circles should help the telco. It remains to be seen if it comes to fruition or not, though.

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