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Reliance Jio’s new mass-connect plan to further hurt incumbents: Analysts

KOLKATA: Reliance Jio Infocomm's new mass-connect Rs 98-a-month 4G plan, seen as a highlight of its second successive cut in effective rates in two weeks, is likely to cause another round of market disruption and more revenue erosion for incumbents Bharti Airtel, Vodafone India and Idea Cellular, analysts said.

Brokerage JPMorgan said Jio's Rs 98/month plan – offering 2GB of data with a 28-days validity span — "could really hurt incumbents", as it is aimed squarely "at attracting the next layer of 4G data subscribers".

This plan, the brokerage said, "would cause another round of ARPU (average revenue per user) downgrades in the industry for plans catering to entry-level data subscribers", adding that Jio's strategy in the immediate term appears to be cornering "a mass segment of incumbents' price sensitive voice/non-data subscribers on to its Rs 98/month plan, which is its most affordable 4G plan, in step with its rapid market share expansion ambitions.

Credit Suisse said Jio's Rs 98 plan could become "a meaningful catch all plan" that would drag down ARPU for most high-end smartphone users to just Rs 83," causing further revenue losses and financial pain to incumbents in the coming quarters.

Late on Tuesday, Jio revised its tariff plans for a second time in as many weeks, effective January 26, saying it was bettering bitter rival Bharti Airtel's recent offers.

On Wednesday, Bharti Airtel's shares fell 6.51% to close at Rs 458.95 on the BSE, while Idea's dropped 5.38% to close at Rs 94.05.

The telecom sector, already plagued by brutal price competition and debt of Rs 5 lakhcrore, has had another poor quarter. Jio's latest tariff cuts are likely to further drag ARPU — a key performance metric — by another 20-30% in the coming quarters.

Unlike Jio, which clocked in a strong ARPU of Rs 154 in the December quarter, Airtel and Idea's fell to Rs 123 and Rs 114, respectively, stung by the cut in interconnection usage charges (IUC), which compounded pressures on their voice and data businesses amid continuing price wars.

Morgan Stanley said Jio's new plan could trigger "churn of low-end 4G data users from incumbent carriers to Jio, or tariff down-trending" if Airtel, Vodafone and Idea match the tariff.

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