Demonetization + Jio to impact Airtel, Vodafone Idea

jio-impact-on-airtel-vodafone-ideaDespite some respite from being allowed to accept old Rs 500 / 1,000 notes for a brief period, the two big events, i.e. demonetization and full quarter of Jio’s free services, are likely to result in a sharp sequential revenue decline. Pressure from Jio’s free launch offers is likely to be felt on three fronts – data volumes (as industry’s paid volumes take an expected knock), data pricing (as the incumbents try to hold on to data volumes) and voice pricing (initial impact of bundled offerings in line with Jio’s announced pricing construct + step-up in aggression on pure voice plans)

Jio’s free offers have resulted in a sharp jump in industry-wide volumes; while a lot of this free traffic is being originated on Jio’s network, these minutes show up as incoming minutes for other networks; A good portion of the likely strong growth in voice traffic for the incumbents would be in the form of incoming. These volumes come in at lower realizations (14 paise/min versus average outgoing realization of around 50-52 paise/minute for incumbents) and hence would reflect in pressure on reported voice RPM.

Incumbents have responded to Jio’s free launch offer with selective aggression of their own, in the form of bundled offers with unlimited voice as well as higher discounting on pure voice plans. Even as this has likely helped the incumbents protect (and perhaps even grow) their outgoing voice traffic (at the expense of the ex-Jio challengers), the impact on voice RPM is negative, again.

Data Segment – Tough to say whether this pressure on data revenues shows up in the form of volumes or pricing but we expect bulk of it to show up in the pricing (ARMB) line. We also note that there has been a sharp slowdown in the pace of smartphone sales post demonetization and this has also had some impact on incremental data penetration at a market level.