Data tariffs may fall 20% with Reliance Jio’s entry: Fitch

New Delhi, 11 November 2014

The entry of Reliance Jio Infocomm in the telecom space will intensify competition and may bring data tariffs down by at least 20 per cent, Fitch Ratings said today.

Reliance Industries had announced that it would launch commercial 4G telecom service of RJio in 2015 entailing investment of Rs 70,000 crore.

“The likely entry of new telco Reliance Jio, which is a part of Reliance Industries Ltd in first half of 2015 will intensify competition in the data segment, and may cause data tariffs to decline by at least 20 per cent,” Fitch said in its 2015 outlook for Indian telecommunications services.

Fitch said Jio will focus largely on data and may have a limited impact on the incumbents’ core voice business, given a weak “voice-over-LTE” technology ecosystem and lack of affordable 4G-compatible handsets in India.

“We do not foresee a re-run of the tariff wars of 2009-2013, which led to a severe decline in industry tariffs,” Fitch said.

“Industry revenue will grow by at a mid-single-digit rate in 2015, driven by data services. The top four telcos’ 2015 average operating EBITDA margin will be mostly unchanged at 32-33 per cent (2014: 32 per cent) as a decline in data tariffs will offset a gradual rise in voice tariffs,” it said.

Fitch said the top four telcos will generate a minimal free cash flow (FCF) margin due to higher capex and flat EBITDA; the 2015 industry capex/revenue ratio could rise as fast-growing data traffic requires supporting investment.