Early this month, Bharti Airtel Ltd’s shares traded at about 550 apiece. They are now 21% lower at about 433. One reason, of course, is that Vodafone Idea Ltd is now expected to survive after the Supreme Court’s final ruling in the AGR (adjusted gross revenue) case. But another is the increased aggression by Reliance Jio Infocomm Ltd, after a massive fund raise by its parent, Reliance Industries Ltd (RIL). “Jio’s aggression in the telecom sector seems to be back post RIL’s significant capital raise, perhaps with an endeavour to fill the gaps in the fixed broadband, postpaid and low-end prepaid customer segments,” said analysts at Kotak Institutional Equities in a note.

First, Jio announced a reduction in effective tariffs in the fixed broadband segment, forcing competitors such as Airtel to follow suit. The latest battlefront is the postpaid segment, with Jio announcing new tariff plans with a number of freebies. Airtel’s shares fell over 8% after the postpaid plans were launched.

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Holding fort

“Jio’s renewed aggression in the telecom sector may accelerate additions to its subscriber base yet again in the medium term,” the analysts at Kotak said, adding that they see the possibility of an upside to their subscriber growth estimates for Jio post the new plans launch.

Jio’ new 399 base plan is priced similar to Vodafone Idea and is 20% cheaper than Airtel’s existing entry-level postpaid plan. But Jio stepped up the value proposition by offering higher data compared to Vodafone Idea and more content subscriptions than Airtel in the entry-level plan. Note that Jio already has a much cheaper 199 per month postpaid plan. But the company remains a laggard in the postpaid business because of high customer stickiness in this segment. Vodafone Idea and Airtel together housed 71% of postpaid subscribers in India last fiscal, data compiled by Jefferies India Pvt. Ltd shows.

But Jio’s new plans may force Airtel and Vodafone Idea to improve their content offerings, which can result in meaningfully higher costs.

“Our back of the envelope calculations suggest that matching Jio’s offering to all postpaid customers base could result in additional annual costs of 1,800-2,500 crore, which is ~4.2% and ~15.8% of Airtel and Vodafone Idea’s annualized Ebitda, respectively,” ICICI Direct Research said. The new postpaid plans can not only inflict churn in the postpaid mobile business of Airtel and Vodafone Idea but also attract their prepaid customers to Jio, some analysts warn. Moreover, 4G-only operator Jio is reportedly working on a low-cost smartphone. If combined with low tariffs, then the new device can lure 2G subscribers, currently with Airtel and Vodafone Idea, says an analyst.

The moral is that Jio’s renewed aggression emphasizes its thrust on subscriber additions. For Airtel and Vodafone Idea, this is clearly bad news.

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