After a gap of four months, Reliance Jio has once again brought in a disruptive tariff scheme which will hurt incumbents Bharti Airtel and Vodafone Idea. To mark the second anniversary of its commercial launch, Jio on Wednesday effectively reduced by Rs 100 the price of its most popular prepaid pack of Rs 399. Consumers who will recharge through PhonePe using MyJio app will get a cash back of Rs 100, so effectively the cost comes down to Rs 299. The other benefits of the pack — 1.5 GB data per day through the validity period of 84 days — stay the same.
Jio’s Rs 399 offer coupled with the data benefit was anyway the cheapest in the market in a segment that attracts the maximum number of subscribers. Now by reducing the price further by Rs 100, incumbents may be forced to revise their offers, thus taking a further hit on their realisations. As a result shares of Bharti Airtel and Vodafone Idea tanked on Wednesday. While Airtel’s share price closed down 1.3% at Rs 375 on the BSE after falling 2% in intra-day trade, the Idea Cellular stock closed flat at Rs 46.25 after a fall of nearly 3% intra-day. At the moment the offer is for a limited period, that is, it ends on September 21, which means that the recharge needs to be done by this date.
However, analysts feel Jio may extend the offer. Over the last two years, tariff packs of Rs 399-499 have been most popular with consumers. Bharti Airtel’s popular packs are of Rs 399 which offers 1.4 GB data a day and a validity period of 70 days. Its other popular pack is of Rs 448 which also offers 1.4 GB data per day but has a validity of 82 days.
“While the focus has shifted to content and the debate increasingly is about how content offerings would be the differentiator between Jio and the rest of the industry, clearly tariffs have a role to play. The additional Rs100 discount would take the tariff effectively below Rs100 month (net of taxes). It remains to be seen if this is a one-time offer, or would it be the new tariff norm,” brokerage JPMorgan said in its report.
While last year Jio had started to increase tariffs, it cut tariffs in December. There was an increase in the data allowance from 1 GB to 1.5 GB. While all this was matched by incumbents, the expectation was that the vast content ecosystem available on Jio for free would be the differentiator. However, as the latest round of discounts highlights, tariffs still have a role to play.
While tariff cuts by Jio earlier were only in the prepaid segment, in May it had started the same in the postpaid segment also where the incumbents had an edge over it. It had launched a new postpaid plan, Zero Touch Postpaid, under which it was offering 25 GB 4 G data per month as well as unlimited national and local calls. Here, there is no per day limit on data usage and consumers are free to exhaust 25 GB data as per their preference.
“The extent of the shrinkage of the industry revenue (adjusted gross revenue) pie is worrying and what’s more it looks set to continue as Jio looks to get to its target market share,” JPMorgan said. “Jio and Airtel seem to be taking a calibrated yet aggressive approach to improve/maintain their subscriber acquisition momentum. While the latest offer does not necessarily impact Arpu (average revenue per user), we believe Jio’s priority is to continue gaining subscribers,” Morgan Stanley said in its initial comments on Jio’s latest offer.