New Delhi: Price recovery in telecom sector could take place from the second half of the current financial year, a report has said.
According to Edelweiss, the report titled ‘Telecom – Daylight Again’ notes that Reliance Jio’s launch in FY17 had unleashed one of the most brutal price wars in India’s telecom market, and consequently, the industry’s average revenue per user plunged about 38 per cent.
“However, finally, there’s light at the end of the tunnel as we perceive potent catalysts on the horizon: mobile broadband penetration crossing 50 per cent has rendered monetising of existing customer base more lucrative than chasing incremental market share; price hikes are imminent as Reliance Jio approaches its 400 million subscriber goalpost,” the report said.
At the same time, the telecom operators are undertaking a massive non-core asset monetisation drive, making it imperative for investors to repose confidence in the telecom industry’s long-term health.
“These, we envisage, to trigger pricing recovery in telecom operators from H2FY20, propelling industry average revenue per user to pre-RJIO level of Rs 156 by end FY22 (Rs 98 in Q3 FY19), in turn catapulting industry size 50 per cent,” the Edelweiss report said.
The report estimated that telecom operators may raise prices in H2FY20 as mobile broadband subscriber penetration reaches nearly 65 per cent.
“Typically, in a market characterised by low penetration of services, providers’ quest for market share to gain economies of scale drives down prices, fuelling price wars. However, as investment requirements mount and relative attractiveness of balance market wanes, weaker players consolidate and participants start favouring pricing over incremental market share,” the report said.
It is pertinent to mention that established operators like Bharti Airtel, Vodafone Idea Ltd are in the midst of a bruising tariff war following the entry of Reliance Jio, backed by India’s richest businessman Mukesh Ambani.
Jio’s free voice and dirt-cheap data offering have dented the financial metrics of older operators, deepening the impact of regulatory decisions like cut in termination charges, even though the market itself is growing at a scorching pace.