Telecom stocks tumble as RJio extends free services

Stocks of companies in the telecom sector lost ground after Mukesh Ambani, chairman, Reliance Industries extended the free offer for its telecom venture – Reliance Jio – till March 2017. 

Billed as Jio Happy New Year Offer, every new Jio user starting 4 December 2016, will get Jio’s data, voice, video and the full bouquet of Jio applications absolutely free till 31 March 2017.

"I want to announce today that starting December 4, every new Jio user will get Jio data and voice, video and full bouquet of content will be free till March 31, 2017," Ambani said in his speech.

Post the announcement, Idea Cellular, Bharti Airtel and Reliance Communications (RCom) lost 2.2% - 4%. The BSE Telecom index slipped 0.5% in late noon deals, as compared to the S&P BSE Sensex that was trading nearly flat.

In a recent note, CLSA had suggested Reliance Jio could extend the offer given the fall in smartphone sales and the impact pf demonetisation. It had also recalibrated earnings forecast for the telecom players.

"The cash crunch in the economy, driven by the government’s recent demonetisation of old Rs 500/1,000 notes will impact telecom operators on several fronts. The move will impact prepaid subscriber recharges more (~80% of sector revenue and 95% of subscribers) as these are largely in cash. While the impact on voice revenues is likely to be short-lived, data revenues – which are more discretionary – are likely to see a larger impact," the CLSA note said.

Adding: "With demonetisation and a slump in smartphone sales, Reliance Jio may extend promotions beyond December 2016. Consequently, we lower our FY17-19 forecast revenue and Ebitda for incumbents by 1%-8%. Among operators, Bharti Airtel is best placed, backed by its network outperformance and share gains (150bp gain in 1HFY17) and, hence, we retain BUY (target Rs 398/share) on it; maintain SELL on Idea Cellular and RComm also, due to high leverage."



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