Subscribers Baffled by Jio's Recent Move

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Team Industry Outlook | Friday, 11 October 2019

Reliance Jio’s move to pass the burden of interconnect usage charges (IUC) to its subscribers through the newly introduced top-up vouchers has baffled analysts, who might now struggle to compute the fair value of the telco that has upended India’s sectoral leader-board in less than three years through record subscriber additions. Analysts want to know whether the move is to be construed as an indirect tariff increase, helping Jio gradually enhance the profitability dimension to the frenetic pace of growth
it has achieved in less than three years. Some others believe the measure might be aimed at pressuring the

regulator to abolish IUC by its original deadline of December 2019. The Street has so far been building
the case of an increase in Jio’s tariffs in the next two years after it reached a subscriber market share of 45%. The telecom venture already accounts for about a fourth of the total enterprise value at Reliance Industries NSE -0.55 %, India’s biggest company by market value.

Jio has attracted a record subscriber base in the shortest span of time due to two factors: Simplicity in the pricing of its tariffs, and reasonable discount on tariffs compared with peers.
Some analysts believe subscribers may find it difficult to assess the benefits of a top-up voucher, and the effective bundled payments could narrow Jio’s tariff differential with peers.
Based on the effective increase in tariffs after the introduction of top-up vouchers, Jio’s 84-day plan could be on a par with those of Bharti Airtel NSE 0.65 % and Vodafone Idea. At present, Jio is 13% less expensive and is a clear value leader. To be sure, the top-up voucher may lift average revenue per user (ARPU). Some analysts believe that this could be an ideal opportunity for Jio to gain subscriber market share by highlighting zero IUC for users of its own network. Jio is a net payer of IUC as 64% calls are outgoing, while for Bharti and Vodafone, these figures are at 45% and 41%, respectively.Jio’s move could ease competitive intensity in the telecom sector, raising expectations of the ‘rule of three’ in the space.