MOSL: TELECOM-RJio alters pricing in a surprise move-This could prolong industry ARPU recovery

​TELECOM: RJio alters pricing in a surprise move; This could prolong industry ARPU recovery

Reliance Jio (RJio) has cut ARPU by 10-25% (INR50-60) for its four popular plans, in a move that could potentially reverse the past-nine-month trend of ARPU accretion. The price cuts come as a negative surprise, especially as RJio seemed to have shifted focus on profitability with the launch of two ARPU-accretive plans recently.

The move, in our view, could be an attempt to eat into the subscriber market shares of smaller operators (Tata Tele, Telenor, RCom, Sistema) before they merge/consolidate over the next six months.

Larger players Bharti and Vodafone's popular price plans are at a meager 11-15% premium to RJio, while Idea's plans are at ~23% premium. We believe Bharti and Idea's data subscriber ARPUs may be 25-30% below their popular price plans, which limits the risk of downtrading - consumers will have little incentives in shifting to RJio's lower-priced plans. Our FY19 estimates for Bharti/Idea build in flat ARPU growth, and thus, the scope to revise estimates is limited.

This move by RJio could prolong the period of hyper competition. However, we expect rationality to prevail in the industry over the next 2-3 quarters, as Bharti and Vodafone-Idea should have steady data capacity and FCF, forcing them to drive growth through ARPU accretion instead of undercutting each other. We maintain our positive stance on Bharti and Idea.