Prices of telecom services are likely to rise in the second half of the current financial year (2019-20), an Edelweiss report said on Tuesday.
The probability of price hike can be attributed to the fact that the penetration in mobile broadband services has increased significantly and is nearing a saturation point.
“We estimate telecom operators to raise prices in H2FY20 as mobile broadband subscriber penetration reaches 65 per cent,” said the report titled “Telecom-Daylight Again”.
“Typically, in a market characterised by low penetration of services, providers’ quest for market share to gain economies of scale drives down prices, fuelling price wars. However, as investment requirements mount and relative attractiveness of balance market wanes, weaker players consolidate and participants start favouring pricing over incremental market share.”
On Reliance Jio, the Edelweiss report said that after 10 quarters since its launch and achieving 30 per cent of the revenue market share (RMS), “it is important to pause and take stock where the company stands now versus its objectives”.
“We believe that after achieving one of its key goals — 400 million subscribers in H2FY20 — Reliance JIO (RJIO) will hike prices to improve return ratios,” it said, adding that, JIO’s management, during its launch, had stated that one of its target is to achieve 400 million subscribers.
Regarding Bharti Airtel, the report observed that, with a strong balance sheet and adequate network investments, it is well placed to capitalise on industry recovery.
On the merged entity of Vodafone Idea, it said: “Although Vodafone Idea has higher operating and financial leverage from India’s telecom industry revival, we maintain our cautious stance considering underwhelming capacity expansion plans and weak data volume traction.”
“We continue to believe that RJIO will become India’s largest telecom operator led by the network’s high data capacity driving mobile broadband subscriber market share.”
Another report by UBS said that customer engagement and willingness to pay for the mobile apps is selectively increasing.
“Survey results also shows that about 55-60 per cent of Jio’s smartphone users engage with Jio’s app versus 35 per cent for Airtel and 25-30 per cent for Vodafone and Idea,” it said
The report, however said that advertisement rather than subscription might be the main revenue source from the content investments of the telecom operators.