ARPU pressure likely to tell on Jio in rural push
ARPU is a key performance parameter and Jio has seen this fall for the fifth straight quarter.
“Incremental subscribers are at a lower end of the market and ability to pay is limited in tier IV and V markets. So average revenue per user (ARPU) pressure is obvious,” said Rajiv Sharma, cohead of research at SBICap Securities. ARPU is a key performance parameter and Jio has seen this fall for the fifth straight quarter – to Rs 126.2 in January-March from Rs 131.7 in the previous quarter.
In its analyst presentation, Reliance Industries said there was large headroom in rural internet penetration, which will be a growth opportunity for the business house. Rural mobile penetration is at 59.2% while internet penetration is at 23.9% as of December 2018 in rural India. Some sector watchers say low ARPU is also the result of customers shying away from adopting minimum tariff plans propagated by Bharti Airtel and Vodafone Idea.
“Jio’s reported monthly flattish ARPU of Rs 126 reflects that it’s still in subscriber acquisition mode. Jio is likely adding those low-value subscribers, which are churning out from incumbents’ portfolio, as they have introduced minimum ARPU plan of Rs 35 since beginning of 2019,” said Nitin Soni, director, corporate ratings, Fitch Ratings.
To weed out non-paying subscribers and increase ARPUs, Airtel and Vodafone Idea rolled out minimum recharge plans — at Rs 35 valid for 28 day — a few months ago. The efforts have started showing results with ARPUs reversing a falling trend to grow albeit marginally in the October-December quarter. The number 1 and 2 telcos are expected to announce their results in the next few weeks.
Analysts expect Airtel’s and Vodafone Idea's ARPU to improve in the March quarter from the Rs 104 and Rs 89 they clocked in the December quarter.
Bank of America-Merrill Lynch expects Airtel’s ARPU to jump to Rs 126, while BNP Paribas estimates Vodafone Idea's ARPU to touch Rs 106. Even if the two telcos reach these numbers, they will still be less than Jio's. The Mukesh Ambani-led telco, which has 306.7 million customers, reported a 65% jump in net profit for the sixth straight profitable quarter in January-March, boosted by strong user additions and data consumption.
Analysts said the company also highlighted its plans for two separate fibre and tower assets going ahead. “RIL is likely to maintain minority stake in the SPVs, given the strategic aspect of the tower and fibre assets in the telecom business,” SBICap Securities said in its report.
Jio demerged its tower and fibre assets in the just ended quarter, which helped reduce liabilities of about Rs 1.07 lakh crore from the balance sheet. Sector experts said although external tenancies on the tower assets will help Jio reduce rentals, there is still time before this trend picks up. “We see very limited possibility of external tenancies picking up any time soon as incumbent telcos have their own tower companies and are challenged with declining margins,” said SBICap Securities.
The operator also informed analysts that it plans to start monetising its digital plans soon.