Reliance Jio suffers from tariff wars, competition, results show

Reliance Jio Infocomm (RJio), the telecom unit of India’s most valuable company, is no longer insulated from competition and price wars that eventually led to shrinking profits and losses for incumbent telecom operators.

During the quarter ended 31 March, the performance of RJio remained subdued, with the company posting a mere 1% growth in profit from the preceding three months.

RJio saw its average revenue per user (Arpu) fall to Rs137 in the March quarter from Rs154 a quarter earlier.

The company’s earnings before interest, taxes, depreciation and amortization (Ebitda) margin, which is a measure of operating profitability, took a beating because of the various discounts offered and stood at 37.8% at the end of the March quarter. RJio’s Ebitda margin was 38.2% during the December quarter.

“Arpu came down... due to price action earlier in the quarter (March quarter),” said RJio’s head of strategy and planning, Anshuman Thakur, at a post-result press conference.

“We have had a tariff reduction of about Rs50 over three months, which we have more than made up with subscriber growth,” Thakur said.

The fourth quarter numbers demonstrate that RJio is no longer insulated from competition, said an ICICI Securities note on Reliance Jio dated 30 April.

Any increase in competition would hurt RJio equally or probably more than the incumbents, said the report.

RJio has benefited from a 46.7% increase in prime membership revenues to Rs750 crore in Q4FY18, according to the ICICI Securities research. It will, however, see revenues from prime memberships cease from the next quarter as the company has waived off the one-year prime membership fees for many of its subscribers.

It is difficult to comment about the ARPU going ahead (FY19), Thakur said on 27 April. “We will have to see how the other operators do and of course the customer traction,” Thakur added.

RJio’s focus for the coming months will remain on adding more subscribers to its network and price hikes—that could lead to ARPU corrections—are thus unlikely, Morgan Stanley said in a research report on the Indian telecom sector dated 29 April.

RJio’s management is expected to remain focused on providing higher value to consumers compared to incumbents, and prioritize customer engagement over short-term revenue recovery, said a 30 April UBS report on the sector.

“Management hopes for revenue growth coming from subscriber growth and higher value to customers. Jio will continue to invest and bid aggressively for content, which it sees as a key differentiator,” the report said.

The company is in the final stage of commercial launch of home broadband services, whose rollout though gradual, is expected to add to the sales and profit of the company, it added.

RJio, which is bullish about its feature phone offerings (Jio Phone), expects to add 8 million subscribers per month.

“What is yet to be seen is how much Jio Phone subscribers, particularly the Rs49/month adopters, would add to operating profit,” said the ICICI Securities research report dated 30 April.

“For now, it is interesting to note that most Jio Phone users continue to recharge under the Rs153 plan, and average data usage is 6-6.5GB/month (vs 5GB in Q3FY18),” it said, adding that the company has not seen Jio Phone traction among voice-only users.

RJio did not respond to an email seeking comments on its future plans.