Incumbents’ earnings may improve on Reliance Jio offer recall

KOLKATA: Reliance Jio Infocomm’s decision to retract its ‘Summer Surprise’ offer following the telecom regulator’s latest diktat is likely to ease competitive intensity in the industry and help incumbent carriers marginally improve earnings numbers this quarter, analysts and industry experts say.

Jio had offered three months of free services to subscribers registering for its ‘Prime’ paid plans by April 15. Telecom Regulatory Authority of India (Trai) had ordered Jio to withdraw the free offer late on Thursday. “Discontinuation of Jio's free services under its Summer Surprise offer will provide some relief from intense competition and is credit positive for Bharti Airtel, Vodafone India and Idea Cellular — who could report better revenue and Ebitda in the first quarter of FY18 than earlier expectations,” Nitin Soni, director at rating agency Fitch, told ET.

Shares of Bharti Airtel and Idea Cellular rose over 2% intraday on expectations of an improvement in the pricing environment. They closed 0.83% and 0.9% higher, at Rs 344.50 and Rs 87.30, respectively, on BSE.

Jio’s parent Reliance Industries’ scrip fell 2.28% to close at Rs 1,405.55. While the `Summer Surprise' offer has been stopped, experts said there is nothing stopping Jio from launching other promotional offers in future, which would keep the pressure on incumbents.

Brokerage J P Morgan said Trai’s advise asking Jio to withdraw its latest offer is “an indication that the sector regulator and the telecom department (DoT) have begun to see Jio’s promotional offers as dragging down and hurting industry revenues, affecting government proceeds by way of licence and spectrum fees that it collects from operators”.

Deutsche Bank backed the view, saying the regulator’s decision reflects “a more holistic view of the health of players, which would be critical for rollout of 4G services and fulfilment of the government’s Digital India agenda”.

Angel Broking fund manager Mayuresh Joshi, however, said big incumbents are likely to see only “very mild improvement” in earnings numbers in the first quarter of the new fiscal as the “cost dynamics” by way of high payouts towards interest and spectrum would remain unchanged and continue being a “drag on cashflows” going forward.

According to Joshi, incumbents blended average revenue per user are likely to remain subdued this quarter.