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Will telecom price war escalate as Jio enters postpaid with Rs 199 plan?

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The price war in the telecom industry is about to escalate as Jio announces its entry to the postpaid segment. May 15 onwards, Jio will begin offering its postpaid plan for Rs 199, with unlimited voice and SMS and 25 MB data. The postpaid numbers will come with pre-activated international calling, rates for which start at 50 paisa per minute.

Jio’s offering, notably, is nearly half of industry standard. Airtel offers unlimited (calling and SMS) postpaid at Rs 399, and so does Vodafone. Both service providers have a certain fee for international activation.

The newly announced postpaid service by Jio also offers international roaming (without special packs) in two slots: Rs 2 per minute on calling, per MB of data and per SMS, and Rs 10 for each minute, MB and SMS.

In a press release, Jio has claimed that these rates are lowest in the world, for both budget and high-users. While we cannot be sure if these rates are the cheapest, they are sure to have an impact on the industry.

Implications?

In the past two years, telcos have offered lower rates in a bid to acquire/retain consumers in the prepaid segment, which has led to falling of revenues for the telecom industry overall, and dipping average revenue per cosumer (ARPUs).

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While postpaid segment accounts for only about 5% of the total consumers in the ecosystem, they are have high ARPUs and are associated on a long-term basis. Postpaid accounts for nearly 25% of telcos’ revenues.

So, if Jio manages to pull postpaid users from other companies, it can make a sizeable dent in their revenues while adding substantially to its own. However, postpaid users are also likely to have more inertia in migrating, as compared to prepaid users.

It will be interesting to see how other telcos respond to Jio’s postpaid plan. Gauging from the current climate and the past, Vodafone and Airtel will also up the ante in all likeliness. Airtel executives have recently stated that the company will continue spending, even as revenue falls, to get more customers.

Telecom industry

The telecom sector’s gross revenue fell by around 8.56% in 2017 touching Rs 2.55 lakh crore, as compared with Rs 2.79 lakh crore in 2016, data released by the Telecom Regulatory Authority in India shows. This reflects a larger trend of falling revenues for the sector, as also marked in the yearly and quarterly financial results released by Airtel and Idea. Consolidated revenues for Airtel in Q4FY18 fell by 5.4% year-on-year to Rs 19,634 crore. For Idea, revenue slumped to Rs 6,137.3 crore in Q4, down from Rs 6,505 crore in Q3.

According to the figures released by TRAI, the adjusted growth revenue increased by Reliance Jio even as all other players faced losses. Jio’s AGR jumped to Rs 7,466 crore in 2017, a steep rise from a recorded loss of Rs 303 crores in 2016.

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