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Mukesh Ambani's Jio Speech Wipes Out Rs 15,600 Crore In Market Cap For Airtel, Idea

Mukesh Ambani's speech at Reliance Industries' 42nd annual general meeting confirmed the worst nightmares of incumbent telecom operators on Thursday. Reliance Jio, which has invested around $20 billion to roll out 4G infrastructure, will offer free voice calls and cheaper 4G data, the company said. "We Indians have come to appreciate and applaud Gandhigiri. Now we can all do Datagiri, which is an opportunity for every Indian to do unlimited good things, with unlimited data," 59-year-old Mr Ambani said.

Jio's 4G data packs will be priced at Rs 50 per GB, around 80 per cent cheaper than current market rate, while voice calls and roaming will be free. Though other telecom operators have also invested heavily and slashed voice and data prices in the run-up to Jio's launch, the slew of offers announced by Jio today seem to have caught telecom investors off guard.

Shares of market leader Bharti Airtel fell over 9 per cent, while Aditya Birla Group-owned Idea Cellular shares sank as much as 11 per cent to 52-week low. Together, the two companies shed around Rs 15,600 crore in market capitalization at the day's lows. "Incumbent operators will need to match these tariff plans, which basically means there will be reduction in average revenue per user (ARPU) and hence impact on EBITDA," said Romal Shetty, partner at KPMG.

He warned that existing operators will face a lot of pain over the next 12-18 months as there will be "massive disruptions" from Jio's formal launch. "Jio has promised many things free of cost for a long time, so for the incumbent operator, it is about retaining the top subscribers. Once you have lost subscribers, it's difficult to get them back," Mr Shetty said.

Though Jio did not commit a date for the launch its 4G services commercially, Mr Ambani announced an offer that enables customers to enjoy data, voice, video, etc., all for free, till December 31, 2016. Jio would seek to have 100 million customers in the shortest possible time, the billionaire chairman of Reliance Industries said. "I am not that surprised around Jio's tariff offers because whichever new entrant wants to make a presence in markets, it has to take subscribers from other existing operators. So to that extent, unless the tariff plan and device affordability is good, it does not make much sense anyway," said Jaideep Ghosh, partner at KPMG Advisory Services.

Jio's tariff offers will certainly trigger a price war among operators that will strain the finances of incumbent telecom companies, struggling under huge debt, analysts added. "The operators' debt profile will deteriorate in FY17 as the agency expects them to incur high capex on network expansion and acquisition of additional spectrum to compete with Reliance Jio," said Tanu Sharma of India Ratings & Research.

Reliance Industries shares, which were up at the start of Mr Ambani's speech, closed nearly 3 per cent lower as analysts do not expect Jio to turn profitable for the next many years. RIL shares have outperformed the Sensex and Nifty over the last few weeks in anticipation of Jio's launch, so some profit taking is expected, traders said.

Reliance Industries' telecom business is unlikely to be EBITDA positive in its first two years of operations, said market expert Avinash Gorakshakar. "A lot of companies will undergo consolidation or may get bought out, but customers will get better technology and competitive prices," he added.

Idea shares closed 10.5 per cent lower at Rs 83.65, while Reliance Communications shares tumbled 9 per cent to end at Rs 49.10. Bharti Airtel shares closed off the day's low, ending 6.3 per cent lower at Rs 310.85.

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