Telecom Sector Update : R-Jio takes the lead with ~20% tariff hike by Kotak Institutional Equitiess
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R-Jio takes the lead with ~20% tariff hikes
R-Jio has announced new unlimited plans, raising tariffs by ~17-25% on popular pre-paid plans and by ~17% on entry-level postpaid plans. The tariff hike is largely in line with our expectations (20% from June 2024) and is already built into our estimates. Further, R-Jio has also restricted unlimited 5G data usage to 2GB/day and above plans (versus Rs239 and above plans earlier), which could potentially lead to up-trading by higher data consumers. While the quantum of tariff hikes is in line with our estimates, R-Jio taking the lead in raising tariffs and shifting focus to improving returns on investments is a sentimental positive. We expect Bharti and Vi to also raise tariffs soon.
R-Jio hikes tariffs by ~17-25% on popular plans; largely in line with expectations
After a long pause (since December 2021), R-Jio has taken the lead in raising unlimited prepaid plan tariffs. R-Jio has increased tariffs by ~17-25% on popular prepaid plans and by ~17% (or Rs50/month) on entry-level postpaid plans. However, R-Jio has kept the tariffs for Jiophone and JioBharat phone users unchanged. The blended tariff increase of ~20% is broadly in line with our expectations and is already built into our estimates. The new tariffs are effective July 3, 2024, and the complete flow-through of tariff hikes is expected by December 2024. We expect Bharti and Vi to also raise tariffs soon.
R-Jio taking a lead on tariff hikes bodes well for the industry
In the last two rounds of tariff hikes, Vi (Dec 2019) and Bharti (Dec 2021) took the lead, while R-Jio was the last one to raise tariffs. Unlike, Bharti and Vi, who have been very vocal on the need for industry tariff repair, R-Jio has not been upfront about the need for industry-wide tariff hikes. However, as we noted earlier, the need for R-Jio to raise tariffs was equally (if not more) pressing, given: 1) its larger 5G investments; and 2) further moderation in RoCEs and FCF. While the quantum and timing of tariff hikes is in line with our estimates, R-Jio taking the lead on raising tariffs is a sentimental positive for the telecom industry.
Unlimited 5G allowance cap to 2GB/d and above plans could lead to up-trading
Further, R-Jio has now restricted unlimited 5G data allowance to 2GB/day and above plans versus Rs239 (1.5GB/d-28 days) and above plans earlier. This move could potentially lead to up-trading to the 2GB/day plan by higher data-consuming users and provide some monetization on 5G.
Overall customer outgo on telecom services could increase by ~Rs475 bn
If Bharti and Vi were to follow R-Jio with hikes in similar quantum, overall customer outgo on telecom services (inclusive of tax) could increase by ~Rs475 bn annually (assuming not much down-trading/subscriber churn). Telecom spends as % of GDP would only inch up to 0.88% (from ~0.8%), but still significantly below ~1.4% of GDP prior to the R-Jio launch. Incremental revenue and EBITDA for the three private operators could inch up by ~Rs400 bn (18%) and ~Rs300 bn (~25%), respectively. Our earnings and FV remain unchanged for now, as we await the extent of tariff hikes from Bharti and Vi.
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