February 19, 2017

Telecom Industry Lost 20% Revenue Due To Reliance Jio Free Giveaways

According to the latest telecom reports released by India Ratings and Research(IND-RA), the Telecom Industry has incurred a loss of about 20% of revenue due to the launch of Reliance Jio and its free services. India Ratings and Research (Ind-Ra), a Fitch group company, said the revision of outlook on the sector to negative for 2017-18 from stable-to-negative for 2016-17 is due to “increasing competition”.

Jio affects Telcos

“The negative outlook reflects Ind-Ra’s expectation of longer and deeper than expected deterioration in the credit profile of telcos following the extended free services by Reliance Jio Infocomm,” its latest report on corporate outlook said. 

Pointing out that there has been an overall negative effect on the Indian telecom market, the report said:

“The existing telcos would lose market share to RJio and suffer profitability while the debt burden will increase due to spectrum and network-related CapEx (capital expenditure),” the report added.

The research agency has also revised the outlook on the sector to negative for 2017-18 from stable-to-negative in the previous fiscal, as a result of ‘hyper competition’ in the telecom sector. Despite the higher volumes, the decline in data tariffs will pull down the average revenue per user while voice revenue remains at risk due to RJio’s declared voice pricing strategy.

“A decline in data tariffs by 20-30 per cent will pull down average revenue per user (by 10 percent, despite higher volumes due to a rise in data usage). Free Cash flows will be negative due to a double whammy of weaker earnings and capex” it said.

All Indian Networks In Loss Due To Jio

It further said that there will be an increase in data usage by 35 to 40 percent, taking the average data usage per user to 1250MB. “RJio’s data-centric business strategy, the proliferation of cheaper smartphones and accelerated adoption of 4G are catalysts for higher data usage,” the report said. In fact, voice data revenue is also set to take a hit after the Jio’s VoLTE offers.

Reliance Jio launched its mobile services on September 5, 2016, offering consumers free voice and data. While the ‘Jio Welcome Offer’ was set to end on December 31, the company again announced an extension offer  ‘Happy New Year’. Jio was then criticized largely by other telcos which suffered immense losses due to major trouble in data and voice pricing.

“A redistribution of market share among the existing telcos is under way as RJio’s subscriber base could cross 100 million by March 2017, but its ability to retain market share would be driven by both pricing and user experience, coupled with the success of VoLTE (voice over LTE) technology,” it said.

However, the agency expects the increasing competition to be beneficial as it would help speed u the consolidation process. “RJio’s launch has accelerated the consolidation of both spectrum and market share which could eventually lead to four private sector telcos in India, ” said the report.

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