Prepaid battle won, Jio eyes post-paid war with Rs 199 plan

Till now, Jio was primarily targeting the prepaid customer base, with only a few post-paid plans. Now, it is targeting post-paid customers, who usually spend over five times their prepaid counterparts and are more company-loyal.

The announcement of a Rs 199 postpaid plan by Reliance Jio will further stretch the process of financial recovery in the telecom sector, as other operators will be forced to do likewise.

Till now, Jio was primarily targeting the prepaid customer base, with only a few post-paid plans. Now, it is targeting post-paid customers, who usually spend over five times their prepaid counterparts and are more company-loyal.

The average monthly spending of post-paid customers was Rs 378 in 2017; prepaid users spent around Rs 67. Post-paid users were five to seven per cent of the top three older operators’ subscribers but contributed over 20 per cent of their revenues.

Due to the ongoing rate war, average revenue per user (Arpu) for the post-paid segment had dropped around 25 per cent; the one for prepaid users had dropped 50 per cent.

“We expect Arpu to remain under pressure and cost pressure to also increase. Recovery will also be gradual from mid-FY20,” financial analysts Jefferies said.

It predicted more fall in Arpu at Bharti Airtel, Idea and Vodafone, the three older majors. Jefferies said Jio’s new plan was aimed at the enterprise market.

Credit Suisse said it expected Jio to follow this with aggressive Mobile Number Portability campaigns. “Arpu compression in India is far from over,” it observed.

Some feel there would be a limited impact on the older operators, as post-paid customers are not highly price-sensitive; they value the brand and the service.

Due to the sharp rate divergence between prepaid and postpaid, the bulk of the price-sensitive postpaid segment might have already migrated to prepaid.

Also, post-paid users might not be so enthused at lower rates for international calls because of rising data usage and the popularity of such calls on WhatsApp or Skype.

Analysts say if the incumbents take on Jio’s offer and reduce post-paid rates, revenue would be hit by two to five per cent.

“Even if the incumbents are compelled to retaliate, they are likely to keep a 15-20 per cent tariff (rate) premium to Jio. Incumbents could mitigate this risk of a post-paid Arpu fall by segmented offers and others such as ‘family plans’, which would moderate the cut in subscriber spending,” CLSA said.

Nevertheless, Jio’s new monthly postpaid rate plan will delay Arpu recovery for the sector, it added.

JPMorgan said Jio’s bid was not so much a subscriber gathering exercise but more to make it the primary SIM for customers at the higher end, and to further dent the revenue base of incumbents.

“We believe some of the existing subscriber base of Jio might choose to upgrade to monthly postpaid tariff plans, which would be a positive,” it said, adding Jio was squarely targeting the high-end Arpu subscribers of the incumbents.

Goldman Sachs believes high network quality, coupled with value added services like access to apps, handset protection and international roaming plans would be key to retain post-paid customers.

“We note that Idea’s capex has been 60-70 per cent lower versus Airtel/Jio in the recent past and, as such, it could see some erosion of its high-end customer base if network quality worsens in the near term. We see little risk of erosion to Bharti’s 18 million post-paid customer base, given its investments in network, but we could see some pressure on Arpu,” it added.

Photograph: Shailesh Andrade/Reuters.