Shares dive: Is Bharti losing out by not reacting to Jio’s moves?

Telecom stocks have taken a beating in the last one month as investors have been jittery that with the Telecom Regulatory Authority of India (Trai) abandoning the move to fix floor price for tariffs, price war may return to the sector.

Shares of Bharti Airtel and Vodafone Idea (VIL) have fallen sharply by 19.58% and 29.33%, respectively, over the last month, while that of Reliance Industries, which owns market leader Jio, is down by 5.62%.

While the fall in share price of VIL can be attributed to its inability to raise tariffs so that it can double its average revenue per user (Arpu) to complement its fund-raising efforts to pay its adjusted gross revenue dues and invest in network; what is surprising is the fall in Bharti’s shares. The company has consistently improved on its 4G user addition as well as Arpu and data volumes.

However, analysts feel that there has been some disappointment that the company has not been able to get fresh investments by either strategic players or financial investors as Jio has been able to do in recent months. The market has been keenly watching Bharti to match some of Jio’s move even though the company has been able to successfully defend its market share so far.

Share prices have sharply corrected as Bharti has not yet said how it plans to defend its premium subscriber base. The company is yet to respond to Jio’s fresh pricing challenge in the enterprise and home broadband segment.

Overall, Jio is a market leader with 400 million subscribers, but its share in the high-Arpu post-paid segment and fixed broadband segment is negligible. To bolster it, it has recently come with a fresh post-paid tariff plans, which are cheaper by almost 20% than Bharti’s.

Credit Suisse expects Arpu in Bharti’s fixed broadband to witness a mixed impact due to the recently launched low-end fixed broadband plans by Jio.

The July data recently released by Trai showed that Bharti has gotten its act together and has reversed the 12-month trend of losing subscribers by adding 3.6 million new users during the month by taking its base to 340 million. However, investors are keenly watching how the competition pans out and whether the company is able to withstand the challenge Jio has thrown in the post-paid and fixed broadband segment.

For June and July, Bharti has been able to add more 4G users than Jio. It added 4.4 million 4G subscribers against Jio’s 3.6 million in July. Analysts also feel that Bharti would need to come up with a plan to counter Jio’s partnership with Google to launch cheaper smartphones, to ensure that its 2G users migrate to its 4G network rather than migrating to Jio’s.