The probability of a price hike can be attributed to the penetration in mobile broadband services which has increased significantly and is nearing a saturation point.
Prices of telecom services are likely to rise in the second half of the current financial year (2019-20), an Edelweiss report said on Tuesday.
The probability of a price hike can be attributed to the fact that the penetration in mobile broadband services has increased significantly and is nearing a saturation point.
The report ‘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 the 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.
“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.