 "Airtel: Pre-empting RJio, boosting data user base")
Bharti Airtel stock, after falling initially, ended marginally lower on Monday after the company introduced pre-paid data packages under its Mega Saver scheme; peers Idea and Reliance Communications ended in the green. Given that it is a specific scheme with an initial payment, the impact may not be as much on pricing but could lead to higher usage, feel analysts. Users have to pay Rs 748-1,498 upfront for the package which will have 28 days’ validity, which can then be recharged for Rs 51-99 for 1GB data with a validity of 6-12 months. The 80 per cent price cut is attributed to the recharge.
Analysts say the scheme, given the upfront payment, is a good strategy to improve the stickiness of the user and will help the company retain customers and attract new ones. This is in context of the impending launch of Reliance Jio (RJio), which many expect could be disruptive for the sector. However, it is also to be seen how customers respond, given that a large part of the market comprises of pre-paid users and many of them are low-ticket. Bharti had earlier this month introduced an unlimited voice package for Rs 1,199 a month and this follows a similar strategy.
While RJio’ pricing is the biggest unknown, most analysts say the data war could lead to a fall in data realisations by 30-40 per cent year-on-year for FY17. Data accounts for about 20 per cent of overall revenues for telecom companies. Margins, too, could see some pressure with analysts estimating the impact from flat to 200 basis points in FY17 for incumbents. Given the impending auctions and the need to scale up the networks, leverage is expected to worsen for the sector from 5.5 times net debt to Ebidta. The positive is that voice realisations have turned around after four-five quarters and is not expected to decline much. Analysts have so far not changed their estimates, but what could turn out to be a big negative is free voice services from RJio as it will be a double-whammy as data offers are expected to be at attractive prices.
Analysts say the scheme, given the upfront payment, is a good strategy to improve the stickiness of the user and will help the company retain customers and attract new ones. This is in context of the impending launch of Reliance Jio (RJio), which many expect could be disruptive for the sector. However, it is also to be seen how customers respond, given that a large part of the market comprises of pre-paid users and many of them are low-ticket. Bharti had earlier this month introduced an unlimited voice package for Rs 1,199 a month and this follows a similar strategy.
While RJio’ pricing is the biggest unknown, most analysts say the data war could lead to a fall in data realisations by 30-40 per cent year-on-year for FY17. Data accounts for about 20 per cent of overall revenues for telecom companies. Margins, too, could see some pressure with analysts estimating the impact from flat to 200 basis points in FY17 for incumbents. Given the impending auctions and the need to scale up the networks, leverage is expected to worsen for the sector from 5.5 times net debt to Ebidta. The positive is that voice realisations have turned around after four-five quarters and is not expected to decline much. Analysts have so far not changed their estimates, but what could turn out to be a big negative is free voice services from RJio as it will be a double-whammy as data offers are expected to be at attractive prices.