Telecom shares under pressure; Bharti Airtel, Vodafone Idea slip over 6%

Shares of telecom service providers, mainly Bharti Airtel and Vodafone Idea (VIL), dipped than 6 per cent on the BSE on Wednesday after rival Reliance Jio (RJio) announced a range of postpaid plans, including many firsts, such as in-flight mobile connectivity.

Bharti Airtel declined 7 per cent to Rs 437, while Vodafone Idea slipped 8 per cent to Rs 9.47. In comparison, the S&P BSE Sensex was up 0.5 per cent at 37,926 points, at 11:45 am. Airtel's stock hit an over seven-month low today, tanking 28 per cent from its record high level of Rs 612, touched on May 20, 2020. It was trading at its lowest level since April 7, 2020.

Rjio, which began operations in 2016, has emerged as the largest operator due to aggressive marketing and attractive low cost plans. However, less than 1 per cent of its 398 million plus subscribers are in the postpaid segment. In contrast, Airtel and Vi ( Vodafone Idea) have 5.2 and 7.2 per cent of their customers in the postpaid category. CLICK HERE TO READ FULL REPORT

The new operator’s postpaid plans announcement, while at similar tariff levels of incumbents (except for base tariff that is 20 per cent cheaper than Airtel’s offering), largely have the benefits of three major OTT (Netflix basic, Amazon Prime, Hotstar VIP) subscription as key attraction apart from offers such family packs and international roaming. The postpaid base of Airtel, VIL were at 14.6 million, 21.5 million, as on Q1FY21, respectively.

“A large chunk (more than two-thirds) of postpaid category in our view, is driven by corporate connections in India (more sticky and mutual terms based). Thus, the response of non-corporate segment will be key to the churn,” ICICI Securities said in a note.

We see the offering as having the potential to drive at least some churn from incumbents, unless they match the OTT offers. Matching of the offering, on the other hand, could result in additional annual costs to Airtel and Vodafone Idea. The announcement, however, puts VIL in a spot, as it would have to weather churn through cost increase, the brokerage firm said.


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