Pankaj Murarka of Renaissance Investment Managers says: “RJio being the largest player will dictate the timing of the price hike. While it is not in a hurry after the fundraising, the same can happen once it takes additional market share after the launch of its low-cost 4G feature phone.”
has a revenue market share of about 40 per cent and has a target of taking this metric to 50 per cent.
Edelweiss Research, however, argues RJio will have to raise tariffs in the medium term if it were to improve its returns. Despite a 40 per cent revenue market share, RJio’s returns are sub-economic with return on capital employed (ROCE) in FY20 at 8 per cent. Its subscriber growth has slowed; hence, tariff hike is the sole option to boost ROCE, they add. Given the hiving off of the tower/fibre assets, its network cost will rise 67 per cent.
Among the few worries for Airtel is the stickiness of its entry-level subscriber base, which is a reason why the company is treading cautiously on the price hike. The fear is of customer churn and widening price gap with RJio, especially in the prepaid segment, which accounts for 95 per cent of the industry's subscribers.
Analysts point out despite lack of a follow-on hike, Airtel has been improving its ARPU, which has expanded from Rs 129 in Q1 last year to Rs 157 in Q1 this year. Besides the hike in December, the ARPU movement was led by a higher mix of 4G customers over year-ago levels and customer upgrades from 2G.
Airtel’s market share also continues to rise and is higher than in the pre-Jio period. In September 2016, it was a clear number one with a quarter of the telecom market share. While Jio has disrupted and consolidated the market since then, Airtel’s share has gone up to over 28 per cent. Even in a status quo position in pricing, analysts believe it will be positive for Airtel and RJio as they consolidate their market share and the sector gradually heads to a duopoly with Airtel remaining a formidable number two. Most brokerages believe the recent correction is overdone and valuations are at attractive levels.