Bharti, Idea shares plunge as Mukesh Ambani launches Reliance Jio
It was a flat day for the stock markets on Thursday but telecom companies took a beating, with their shares tumbling 6-10%, wiping off more than Rs 13,000 crore of their market cap, after Reliance Industries unwrapped its much-awaited Jio mobile network.business Updated: Sep 01, 2016 19:47 IST
It was a flat day for the stock markets on Thursday but telecom companies took a beating, with their shares tumbling 6-10%, wiping off more than Rs 13,000 crore of their market cap, after Reliance Industries unwrapped its much-awaited Jio mobile network.
Idea Cellular shares plunged 10.50% to Rs 83.70, Anil Ambani’s Reliance Communications tumbled 8.8% to Rs 49.15 and Bharti Airtel slipped 6.4% to Rs 310.70.
A 4G service, Jio will be launched from September 5, offering free domestic voice calls and data at rock-bottom prices that is expected to hit the competition hard. There will be no roaming charge.
Effective rate for data on Reliance Jio will be around Rs 50 per giga byte and it will be even cheaper for heavy users, with Reliance chairman Mukesh Ambani promising to “transform India from a high-priced data market to one with the lowest data rates anywhere in the world”.
The service will be free till December, which is expected to drive data traffic away from incumbent service providers to Reliance Jio, analysts say.
“Prima facie Reliance Jio’s pricing is not just highly competitive but also challenges the prevalent tariff structures as Jio will offer free voice calling and SMS services bundled with the data tariff,” said Tanu Sharma, associate director, India Ratings and Research.
“This could hurt the voice tariffs and average revenue per user of existing operators as well as push them to match the pricing, in a bid to protect their market share.”
Crisil expects EBITDA (earnings before interest, taxes, depreciation and amortisation) margins in the telecom industry to drop 250-300 basis points in 2016-17 and remain under pressure in the next fiscal as well.
“Reliance Jio’s price aggression is expected to exacerbate pressure on both revenue growth and profitability of existing operators,” the rating firm said.
Companies will not only have to revisit tariff structure and customer retention strategy but may also be forced to more aggressive in the upcoming spectrum auctions, especially in high revenue-generating circles where they have limited capacity to offer 4G services, it said.
First Published: Sep 01, 2016 19:46 IST