Reliance Jio's pricing scheme has forced incumbent telecom firms to cut voice and data tariffs to approximately Rs 50 per GB during January-March of 2017.
According to the Economic Survey tabled in Parliament on Friday, the Telecom sector has experienced a "renewables shock" in the form of a new entrant that has dramatically reduced prices of data services and increased access to data, ultimately benefiting consumers.
After services of Mukesh Ambani-run Reliance Jio — the new entrant — was launched in September 2016, the average revenue per user (ARPU) for the industry came down by 22 per cent compared to the long-term (December 2009-June 2016) ARPU, and by about 32 per cent since September 2016. "The entry of a new player has extended competition from cheaper calls to cheaper data."
However, with the entrant of the new player, near-term implications for the viability of incumbents are serious, as their profitability comes down dramatically, the Survey noted.
Reliance Jio's pricing scheme has forced incumbent telecom firms to cut voice and data tariffs to approximately Rs 50 per GB during January-March of 2017.
The adjusted gross revenue of the top three telecom companies in India — Bharti Airtel, Vodafone India, and Idea Cellular decreased by 7.98 per cent, 5.14 per cent, and 4.91 per cent, respectively during the third quarter of 2016-17 as compared to its previous quarter.
As per the Telecom Regulatory Authority of India, the Q3 of 2016-17 had recorded 1,127.4 million wireless subscribers, which is 7.7 per cent higher than the previous quarter Q2 of 2016-17. Reliance Jio Infocomm recorded the highest net addition of 56.2 million subscribers, which is much higher than others service providers like Idea with 11.7 million and Bharti Airtel with 5.9 million subscribers during Q3 of 2016-17.
Reliance Jio had commercially launched its services in September with free voice calls and data services. It shifted to a paid model later but voice calls are still free and data rates are relatively lower,t too. The company currently has 125 million users. Jio's offerings forced existing telecom operators to offer similar tariff plans to retain their subscribers.
Rural teledensity increased to 57.55 per cent in May which was only 50.95 per cent before Jio launched.
However, the survey noted that stiff competition, price wars, and reduced revenue have reduced the sector's interest coverage ratio to less than one since Q3 of 2016-17.
What's worrisome is that the sector's share in non-performing assets (NPAs) has increased. Though the total NPAs of telecom sector in Public Sector Banks (PSBs) has fallen to Rs 2,335 crores in 2016-17 from Rs 3,465 crores in 2015-16, the share of NPAs of telecom sector in total NPAs of the infrastructure sector increased to 8.7 per cent in 2016-17 from 5.0 per cent in 2015-16, the Survey said.
The government has placed emphasis on the growth of the telecom sector in the country for the success of the Digital India campaign and plans to extend the reach of mobile networks to remote and rural villages to convert India into a digital economy and knowledge society.
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