Bharti Airtel, Idea Cellular Share Prices Plunge Today On Jio Postpaid Announcement

Share prices of Bharti Airtel and Idea Cellular fell sharply today after Reliance Jio Infocomm unveiled a new post-paid plan. Jio, the telecom arm of Reliance Industries, introduced an unlimited domestic post-paid plan for Rs 199 and international calling starting at 50 paise per minute, starting 15 May. Under the Jio's post-paid offering all services such as voice, internet, SMS, international calling will be pre-activated. Shares of Idea fell as much as 12.9 per cent to Rs 50.80 at day's low while Bharti Airtel declined around 7.5 per cent. Reliance Jio's entry into the telecoms sector has set off a brutal price war among operators as they drastically cut prices to compete with Jio's aggressive plans.

The Jio Rs199/month rental (pre-service tax) postpaid plan comes with a 25 GB data allowance and unlimited domestic voice calls. The plan also comes with pre-activated ISD calling facility.

For the top three big telecom operators in India, post-paid users make up only 7 percent of the total subscribers, but contribute more than 20 per cent to their revenues, said Jefferies. Airtel and Idea are expected to launch new plans in response to Jio's offer and thus see a further decline in their average revenue per user, Jefferies added.

Any 10 per cent cut in post-paid prices will lead to an EBITDA or operating profit to decline of 12 per cent and 6 percent for Idea and Airtel respectively, added Jefferies.

“While ISD outgoing is a very low proportion of industry’s overall voice volumes (less than 0.1 per cent of outgoing volumes), we believe the contribution to industry revenues could be in the 1.5-2 per cent vicinity, Rs2000 crore to Rs3000 crore in absolute revenues.” Kotak said in a note.

In the March quarter, Bharti Airtel Ltd posted its lowest quarterly profit in nearly 15 years on Tuesday, as a price war in the telecoms sector continued to hurt, while revenue was hit by a regulatory cut in international termination charges. Profit slumped 77.8 per cent to Rs. 82.9 crore in the quarter ended March 31, the company said, its lowest since the quarter ended June, 2003.

Idea Cellular had posted a sixth straight quarterly net loss that was narrower than expected but showed the firm continues to battle intense competition sparked by rival Reliance Jio. Its net loss widened to Rs. 962 crore in the quarter ended March 31, from Rs. 328 crore rupees in the same period a year earlier.

Bharti Airtel shares settled 6 per cent lower at Rs 385 while Idea Cellular shares ended 12 per cent lower Rs 51.45. In comparison, Reliance Industries shares were up 0.8 per cent in a Mumbai market which was up 0.82 per cent.