JioFiber’s impact will be limited due to lack of pricing aggression: Crisil

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MUMBAI: Credit rating agency Crisil has come out with a research report stating that Reliance Jio’s tariff plans for its fiber-to-the-home (FTTH) service JioFiber will not be able to disrupt the market to the extent its 4G service has done.

On 5th September, JioFiber launched its service offerings starting at Rs 699 for 100 Mbps, or the Bronze pack, going up to Rs 8,499 for 1 Gbps, or the Titanium pack. Crisil Research believes the plans are unlikely to drive a significant churn in the market.

It went on to state that the lack of pricing aggression and non-attractive bundled pricing would result in a limited disruption in the underpenetrated wired broadband market.

Further, a higher non-refundable deposit fee of Rs 2,500 and additional cost for premium content would also dampen prospects.

It also noted that pricing for mid-size packs continues to remain higher than current wireless pricing on a per GB basis, thereby giving comfort that pricing in the wireless market would stabilise.

JioFiber’s base plan starts at 100 Mbps for 100 GB data limit (+50 GB extra for six months). The base plan of most other wired broadband providers starts at 50 Mbps for almost the same amount of data, if not more.

While Jio’s pricing per GB is approximately Rs 4 for the base plan, rivals are also in a similar range. Government-owned BSNL’s is much lower at Rs 2. Among premium plans, JioFiber’s price per GB is approximately Rs 1.2-1.6, again in line with competitors.

“We believe consolidation in the sector is also some time away. Further, emerging developments in terms of pricing in the television distribution space will remain a monitorable. So intense attrition is unlikely in the road ahead,” the report stated.

JioFiber has introduced some differentiated offerings including speeds of 1 Gbps, television set on annual subscription of higher-end plans, and other value-added services such as virtual reality sets, home security, content sharing, and device security.

However, Crisil believes that these niche services are not the primary hook for customers at present, for ‘smart homes’ are yet to capture public imagination and wallets. Moreover, current speeds of 50-200 Mbps offered easily fulfil the data needs of households. Giga-speeds would find applications mostly in IOT (internet of things) usecases, the uptake of which, we believes, is still some time away.

India currently has 18.4 million broadband subscribers as of March 2019 as per the Telecom Regulatory Authority of India’s (TRAI) telecom subscription report. With a mere seven connections per hundred households, India’s wired broadband market is highly underpenetrated. In comparison, developed nations such as the United States, the United Kingdom, France, and Japan have 30-50% penetration levels.

Further, the broadband subscriber base has been expanding at a snail’s pace over past five years on account of relatively high tariffs in wired broadband compared with wireless and lack of focus among telcos in the wired broadband space.

In contrast, India has high television penetration of 65%, with approximately 190 million households owning cable or direct-to-home (DTH) connections. Of this, 167 million households are without wired broadband connections (assuming a household with wired broadband will also own television). These households could have been a ready target market had broadband services been bundled with TV subscription at competitive rates.

“With the new entrant’s pricing giving no indication of bundling TV cable services, this market would largely remain untapped for now, narrowing the possibility of a significant uptake in broadband penetration,” Crisil report stated.

The report notes that the acquisition of Hathway and DEN networks gives JioFiber access to 14 million cable TV homes to push its broadband offerings. “That can spur some growth in the number of broadband subscribers, which has been stagnant over the past three fiscals. Based on this scenario, we expect broadband subscriptions to reach approximately 22 million over the next 18 months.”

It also does not expect a material impact on entities across the value chain given the lack of bundled offerings in low packs and a niche target market for premium packs.

To sum up JioFiber’s impact across categories of players:

  • Existing integrated triple-play provider commands a 13% share of the wired broadband market and also serves 16 million DTH connections. While we do not expect a churn in broadband, the average revenue per user (ARPU) would fall marginally as the player would try to match JioFiber’s pricing to protect market share
  • Public sector entities: Already offer higher data limits than rivals and hence would be least impacted
  • Local internet service providers and multi-system operators providing broadband: Because of small scale, they may find it difficult to thrive in competition. But for now, we expect them to put up a fight by matching their offerings with JioFiber
  • Standalone/DTH operators: No impact for now. However, the increasing popularity of IPTV (internet protocol TV) and falling data prices may pose a threat in the long run

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