Jio’s new tariff plan, starting at Rs 399 per month, offers premium OTT
content from Netflix, Amazon Prime, and Disney+ Hotstar.
(mobile only) costs Rs 199/month, while Prime Video and Disney+ Hotstar
cost Rs 999 and Rs 399 per annum, respectively. As Bharti Airtel
and Vi already offer Prime Video to their customers, starting at Rs 499/month, the difference is Netflix
which, BNP Paribas says “is not a big factor for post-paid customers as long as content offering can be matched”.
“Considering the large post-paid base of 14.6 million, Bharti Airtel might be able to get an attractive wholesale deal with content providers,” it says.
Those at CLSA, on the other hand, believe Jio’s new plan is bundling three leading OTTs but with no content exclusivity, such offers can be matched by incumbents. “For all three operators, pre-paid tariffs are 55-65 per cent cheaper than post-paid, so migration by price-sensitive subscribers is unlikely,” CLSA
The retail price of the Netflix
mobile-only plan in India is Rs 199 per month and Hotstar
VIP comes at a monthly price of Rs 33 (Rs399 per year). Assuming wholesale price of these plans at a 50 per cent discount to the retail price, and adjust for these from Jio's new plan, the plans are 47 per cent cheaper compared to Airtel's Rs 499 plan. However, an analysis by Morgan Stanley estimates that Airtel's current post-paid average revenue per user (ARPU) is around Rs 380-400 per month, which implies that there are still subscribers on plans below Rs 499 (which were discontinued earlier this year). Hence, the discount compared to those plans is narrower.
A survey of 1,000 customers, conducted by BofA
Securities, reveals that 68 per cent of the users can pay 15-20 per cent more to avail the same data allowances. When analysed on an operator by operator basis, 67 per cent of Bharti Airtel customers were okay with higher tariffs. A similar survey by JPMorgan
revealed that 67 per cent of respondents exhibited increased propensity (proportionate rise in expenditure with every proportionate rise in income) to pay for premium content, while 34 per cent of users liked the idea of telcos bundling OTT services.
India is largely a pre-paid market, with 95.5 per cent of the subscribers on pre-paid plans, reports suggest. Post-paid market, which is considered as a premium segment, accounts for 20-25 per cent of mobile revenues of Bharti Airtel and Vodafone Idea, which analysts say is less prone to churn. Individually, JPMorgan’s survey revealed that post-paid customers constitute only 5 per cent of Airtel’s subscriber base, generating 15-20 per cent of revenues.
“We believe Bharti Airtel may sweeten its offering by bundling more OTT services. We do not expect much subscriber churn risk to Bharti Airtel’s existing postpaid customer base, given its premium brand positioning and lower churn in this segment,” said a report by Credit Suisse.
As Bharti Airtel is yet to come out with its new pricing, analysts are unsure of how Jio’s plan will affect the financials. However, back of the envelope calculation suggests 2-4 per cent hit on EBITDA. Assuming a loss of 25 per cent individual customers, BNP Paribas expects Airtel’s revenue to dip 2 per cent and EBITDA by 4 per cent in FY21 In a situation where Airtel bundles OTT services without raising tariff, Airtel’s mobile EBITDA may slip by 2-6 per cent for FY21
Those at CLSA
say that a 10 per cent loss of post-paid subscribers will be a 1-2 per cent hit to Bharti’s consolidated revenues and EBITDA and could lower their fair value by 3 per cent (currently Rs 715 per share) in FY21.
“Bharti Airtel’s stock price has corrected by 14 per cent over the past 20 days due to investor concerns on mobile tariff hike delay. We continue to maintain that the current pricing is not sustainable and therefore expect price hike in the medium to long term... We expect Bharti Airtel to benefit in the medium to long term, given its strong execution and premium position in the sector. We maintain our positive stance on Bharti Airtel with an OUTPERFORM rating and a target price of Rs700,” said a report by Credit Suisse.
believes Airtel would continue to benefit from ARPU recovery and stronger market segmentation, and therefore maintain an ‘Overweight’ stance on the stock.
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