Jio to keep adding subscribers despite decline in average revenue per user

Reliance Jio’s average revenue per user (ARPU) has fallen for the past six quarters. However, it says the focus on subscriber addition will go on.

 

Analysts, however, feel pricing recovery in the sector is around the corner. From the second half of this financial year, they expect Jio to start raising its prices.

 

As of now, Jio says it is keen to have more subscribers on long-term plans, even if this negatively affects revenue. Declaring the March quarter results, the company said it had 331.3 million consumers, as of end-June.

 

Its ARPU has been slipping consistently — from Rs 137 in Q4FY18 to Rs 122 in Q1FY20. Its peak ARPU at Rs 154 was in December 2017 quarter.

 

Anshuman Thakur, chief strategy officer at Jio, reasoned: “ARPU came down because subscribers have been moving to long-term plans, from the 28-day Rs 149 plan to the 84-day Rs 399 plan. We want long-term stickiness of the customer but (this shift) has a negative impact. More JioPhone (its feature phone offering) users came on board (in the March quarter) and the entry-level plan, which has a negative impact (on revenue).”  He says the immediate focus is not on boosting of ARPU but getting even more subscribers. “We are happy with the subscriber and data consumption growth. Our priority is getting more customers and more traction.”

 

The firm is also aiming at having more users do digital recharge; this, however, has a negative impact in the short term. “We saw a lot of digital recharges this quarter (January-March), which has been a long-drawn effort for us. But, these recharges have incentives (for the customer) like cash-backs, which in turn hits the ARPU.”

 

Further, Jio offers the cheapest 4G data plans in the 28-day and 84-day categories. The older companies (Airtel and Vodafone Idea) offer plans at a 15 to 34 per cent extra pricing. The latter two are trying to gain high ARPU subscribers, while Jio is interested in improving its subscriber base with data consumption.

 

Jio also continues to subsidise digital recharges for Jio plans, with additional impact on revenue. While the older telecom companies’ pre-paid plans get cheaper as subscribers upgrade to longer duration ones, Jio’s discounts on longer duration plans come down to 10-25 per cent, wrote CLSA.

 

Jio also, as Thakur says, does not recognise interconnection usage charge revenue, unlike other operators. “Therefore, the ARPU comparison is not like to like,” he said. ARPU is measured by total revenue of the operator divided by its total number of users.

 

JioPhone plans are, however, unmatched in the level of discounts offered. This is increasingly making it a primary choice in low budget markets, despite issues with the hardware and competition from vendors of second-hand smartphones, say analysts.

 

However, subscriber addition momentum has lately slowed. In a recent note (after the Trai’s user numbers for May were issued), financial services entity Edelweiss has noted that Jio’s had slowed from an average monthly addition of 10 million in FY19 (the year ended March 31) to 8.1 million and 8.2 million in April and May 2019, respectively.

 

“We believe, with higher saturation and deepening penetration, this pace will slow down further, following which Jio will look to monetise the acquired market share. At the current pace, Jio is likely reach its targeted 400 mn subscriber base in the fourthquarter of FY20, post which we expect it to hike prices,” goes the Edelweiss note.

 

JioPhone constitutes 40-50 per cent of the feature phone subscriber base in India. Jio’s data traffic share, however has declined with the growth of JioPhone.

 

"India’s mobile data subscriber additions in FY19 doubled to 142 mn, led by 4G, and JioPhone formed about 45 per cent of the additions,” noted a report from CLSA. Meanwhile, over the past two years, Jio lost 21 percentage points (ppt) in data traffic market share to 60 per cent; Airtel gained 17 ppt with improved 4G data network, it said.

 

Analysts expect the JioPhone base to touch 127 mn over the next year. At present, it is estimated at 60-65 mn (Jio does not disclose the break-up).

 

Analysts also expect Jio to start raising prices from the second half (H2) of 2019-20. "In the smartphone segment, we expect the industry to be in the stable pricing phase till H2 as operators focus on 4G subscriber addition. Although there has been no downward tariff (rate) revision for almost a year, gradual downtrading by customers has led to downward shift in Arpu — Rs 142 currently. As Jio starts raising prices from H2, we expect smartphone Arpu to start rising by 3.2 per cent (calendar quarter growth rate) H2 onwards, and settle at Rs 200 over 10 quarters," wrote Edelweiss.