Jio competitors may struggle to grow revenue and profit in Q4

India telecom operators such as Bharti Airtel, Idea Cellular, Vodafone India and Reliance Communications are under major pressure to grow revenue and profit in the fourth quarter of fiscal 2017 due to Jio.

The balance-sheet of these major telecom operators in India came under major pressure in the third quarter (October-December) of the current fiscal.

Vodafone India earlier said its service revenue declined 1.9 percent in Q3 fiscal 2017 against 5.4 percent increase in Q2, due to competitive pressure following free services offered by the new entrant.

Data browsing revenue growth slowed from 16 percent in Q2 to 0.6 percent in Q3 due to the impact of free services from Jio. Jio forced Vodafone India to report quarter-on-quarter decline in data mobile customer base to 65 million from 69.6 million in Q2, mainly reflecting fewer 2G users.

Vodafone India’s 3G / 4G customer base declined slightly quarter-on-quarter to 35 million. Mobile data pricing declined 11 percent year-on-year, while the growth in data usage per customer slowed to 15 percent compared to 28 percent in Q2, reaching 505MB in Q3.

Vodafone Group noted the Jio pressure on its India business’ data subscriber base in Q2 of fiscal 2017. Vodafone India’s 70 million data subscribers including 36 million 3G / 4G subscribers in Q2 did not grow from Q1.

Margin pressure on telecom operators will continue as long the free data offer from Reliance Jio continues. “As and when Reliance Jio decides to withdraw its offer and start charging for its data services, then it will be a different matter,” said Arpita Pal Agrawal, partner and leader, Telecom Industry Practice, PricewaterhouseCoopers India.

“Customers will then compare telco offerings on parameters such as price points, throughput speed, tariff bundles, service experience to decide about their preferred operator option,” she added.

As announced earlier, Reliance Jio plans to offer free data to its customers till March 2017.
Reliance Jio share in Indian operator in DEC 2016
Bharti Airtel’s net profit for the third quarter of 2016-17 dropped by 55 percent while Idea Cellular reported a loss of Rs 478.9 crore for the same quarter. Reliance Communications too posted a net loss of Rs 531 crore in the quarter. Vodafone India, the other big telecom operator is not listed on any Indian bourse.

“The quarter has seen turbulence due to the continued predatory pricing by a new operator. The present termination costs at 14 paise which are well below cost has resulted in a tsunami of minutes terminating into our network. This has led to an unprecedented year-on-year revenue decline for the industry, pressure on margins and a serious impact on the financial health of the sector,” Gopal Vittal, Airtel’s MD and CEO, India & South Asia, had said in a statement earlier.

Idea Cellular too gave a similar reason for the sharp drop in earnings. “The Indian mobile industry witnessed an unprecedented disruption in the quarter of October to December 2016, primarily due to free voice and mobile data promotions by the new entrant in the sector,” the company statement said.

Reliance Communications attributed the loss to three factors. “The industry witnessed unprecedented competitive intensity. This was the first full quarter after company’s complete shutdown of its profitable CDMA operations. And there was an increase in amortisation and interest expense aggregating Rs 278 crore on account of capitalisation of 850 MHz spectrum liberalisation fee,” it said in a statement.

Reliance Communications is owned by industrialist Anil Ambani and Reliance Jio’s owner is his elder brother Mukesh Ambani.

Mahesh Uppal, director, Com First, a telecom consultancy firm, also said there is no doubt that the revenue drop in the third quarter was a direct consequence of Reliance Jio’s aggressive free data offers.

“Incumbent companies, like Airtel and Idea, are being forced to match the prices to remain competitive. The cut-throat pricing is likely to continue since Reliance Jio would want to use it to acquire a decent market share,” Uppal said.

“India is a very price sensitive market; any such offering tends to be disruptive. Incumbent operators need to implement strategies to retain their high-value customers,” said Rishi Tejpal, principal research Analyst for Telecom Business Strategy at Gartner.

“Operators need to implement data-oriented pricing strategies. Jio’s free voice service with free national roaming is a compelling offering and incumbents need to match their offerings to remain competitive,” he added.

Aparajita Gupta / IANS