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Billionaire Ambani's Reliance Jio cuts prices, reviving India wireless price war

Move shows Jio too faces pressure to retain customers

Mobile phones are displayed at Reliance Jio shop in Mumbai. (Photo by Ken Kobayashi)

MUMBAI (NewsRise) -- Billionaire Mukesh Ambani's wireless venture Reliance Jio Infocomm is set to slash tariffs and offer more free data starting Tuesday, reigniting a price war that has scuppered many operators in India's telecom market.

Reliance Jio, which rolled out services in September 2016, started charging customers from April last year. Since then the company has revised its offers twice, raising hopes of a recovery in prices as several mobile phone service providers reel under massive debts and wafer-thin margins. However, the latest reduction signals that the cutthroat rivalry in far from over.

The competition is also quickening a consolidation in the sector. Last month, Reliance Communications, backed by Mukesh's younger brother Anil Ambani, sold its wireless assets to Jio in a bid to pay off its debt. In October, Tata Teleservices gave away its mobile phone business to Bharti Airtel virtually free of charge to stem losses from the venture.

Under the new offer, Jio is giving a 50 rupees ($0.79) price discount across its tariff plans, or 50% more data at existing prices, the company said. That leaves its basic monthly pack for customers at 149 rupees, the lowest in the industry, according to Jio.

With the price cut, Jio's customers will pay 25% less for the same service, or get 20% to 33% more in daily data across various plans. The new price also offers an average 15% discount to the average revenue per user on its ongoing plans.

Analysts say the price cut is a reflection of the pressure Jio faces to expand its customer base and retain existing users.

"The company was attempting to maximize revenues from the customers through periodic tariff raises," Credit Suisse said in a report on Monday. "However, the latest move to roll back these tariff increases shows that the company is facing some inertia from customers in upgrading to higher plans. It is possible it saw customers dropping off, or downgrading to lower plans."

On Monday, shares of India's largest mobile phone company Bharti Airtel slumped 4.4%. The stock was the biggest loser on the benchmark S&P BSE Sensex that hit a record high with a 0.6% gain. Smaller rival Idea Cellular lost 5.3%, the most since May.

In July and October, Jio reduced the amount of free data it offered by cutting down the validity of its tariff plans as it cautiously stepped up efforts to make money from its almost $30 billion investment in the wireless venture.

The successive revisions had raised hopes among investors of stability returning to the industry that has been saddled with a whopping $76 billion in debt. Shares of Bharti Airtel and Idea Cellular had risen 30% and 28%, respectively, since July.

While in the past, incumbent operators have been slow to respond to Jio's pricing, this time Bharti Airtel has responded swiftly to defend its market share, analysts said. The company has already increased the validity period of two of its tariff plans to 82 and 91 days from 70 and 84 days, respectively, offering more free data at the same price.

"The incumbents increasingly have much less to lose," said Kotak Institutional Equities. "Defend or perish, it is."

Jio's move also comes at a time when the sector's financial stress is likely to exacerbate in the coming months, as a 57% cut in mobile termination rate starting October is set to crimp their revenues.

In the quarter ended in December, Kotak Institutional Equities is expecting Bharti's revenue to decline as much as 9.5% sequentially, with a 12% drop in operating earnings. It expects Idea's operating earnings to plunge as much as 25% sequentially.

--Dhanya Ann Thoppil

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