Jio’s renewed post-paid push
Jio has renewed its post-paid game plan with the launch of new plans under which it is offering an extensive content portfolio at a rate which is ~6%-20% cheaper than Bharti and VIL. In the past, Jio has tried to capture the post-paid market with aggressive pricing while consumer stickiness and a lack of content offerings prevented it from achieving any notable gains. However, this time extremely aggressive content offerings (Netflix, Amazon prime, Disney+Hotsar VIP) could be the key attraction for consumers. Jio has priced its base plan (Rs399/month) at a 20% discount to Bharti along with OTT apps.
* Apart from potential subscriber churn from VIL and Bharti, existing Jio pre-paid subscribers who are hungry for content might also look to upgrade to the base post-paid plan. Further, the base plan is an attractive option for Jio’s pre-paid subscribers on 3GB/day plans as they are paying closer to the base post-paid plan. Significant post-paid subscriber additions should improve ARPU with better subscriber mix and might partially resolve the purpose of potential tariff hike.
* Will Bharti and VIL follow? To retain high ARPU post-paid subscribers, Bharti and VIL will have to follow suit with OTT tie-ups and offerings. Until Jan’20, Bharti used to offer three-month free Netflix subscription to its post-paid subscribers under the Rs499 plan. Although the post-paid subscriber base has been sticky, Jio’s lucrative pricing and attractive content offerings may encourage subscribers to port-in if they are not matched by Bharti and VIL. Bharti’s focus to improve and build stronger network is in favor of the company to retain postpaid subs, apart from potential likelihood of content offering match up with Jio.
* Financial impact on incumbents: We do not expect Bharti or VIL to undercut headline tariffs to compete with Jio. However, we do believe that they have to match Jio’s content offerings, leading to an increase in opex. Content deals have multiple variables with minimum guarantee, consumption pattern, downloads, etc. Our calculations suggest EBITDA impact of ~Rs18-22bn (4-5% impact on FY21 EBITDA) if Bharti looks to offer complimentary Netflix and majority of its post-paid subscribers opt for the same.
* Post-paid subscribers constitute 5-8% of the subscriber base and contribute 13-16% to wireless revenues of Bharti and VIL. Corporate/Enterprise subscribers form the majority of the post-paid users. VIL’s weak financial position and a higher proportion of post-paid subscriber base make it more vulnerable to losses. We are hopeful Bharti will follow Jio on content offerings, which should limit subscriber losses and the impact on revenues. Currently, we are keeping our estimates for Bharti and VIL unchanged.
* Outlook: Jio’s aggressive efforts should add to Bharti’s recent underperformance as it would raise questions on a potential tariff hike in near term. As highlighted in our recent note, any postponement in tariff hike to FY22 will have an 8% negative impact on Bharti’s FY21 EBITDA. A lack of tariff hike visibility in the near term, success of Jio’s renewed post-paid push, delayed reaction from Bharti to counter Jio and the ability of VIL to raise funds will be key factors for Bharti’s stock price performance. A lack of tariff hike in FY21 or even beyond will have a meaningful negative impact on Jio’s operating performance as well. This is getting ignored now due to its strong balance sheet after a series of fund raising. Based on our calculations, the absence of a tariff hike will lead to a ~18% cut in EBITDA estimates for Jio in FY21E.
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