Why Reliance Jio's tariff war that has singed Airtel, Vodafone, Idea refuses to end

Reliance Jio, the third-largest telecom operator in terms of subscriber market share, continues to dictate the financial performance of its archrivals Vodafone Idea Ltd and Bharti Airtel. The telecom tariff war, which was kicked off in September 2016, refuses to make way for the "rational pricing". It seems that large-scale consolidation didn't have effect on raising tariffs, and bailing out telcos from their tough times.

The tariff war was triggered by Jio to take its subscriber base to a considerable size. The tariffs were kept low to lure customers from other telcos. Indian telecom subs are dominated by prepaid customers - over 90 per cent - who don't have allegiance to a particular brand. Jio did achieve some landmarks in the initial days - reaching 100 million subs in 170 days.

With the passing of time, the company's ambitions are soaring too. According to reports, Jio is now targetting to achieve 100 million subscribers in 15 months. Its subscriber base stood at 252.25 million at the end of September, as per TRAI data. Brokerage firm CLSA estimates that Jio's subscriber base will hit 414 million by 2020, a milestone that many analysts believe could be the beginning of the end of the tariff war.

In August, telecom secretary Aruna Sundararajan had said that the tariff wars will likely to continue until 2019 or the first quarter of 2020 after which the fundamentals of the market will take over, and the operators will start focussing on monetisation.

"I think that even for Jio, there's a trend towards monetisation. Jio has the same compulsion as others? once they have a respectable [subscriber] share, they will come in line with the rest of the sector," she had said.

Technically, nothing really stops Jio (and others) from raising tariffs even today. Going purely by the financial situation of three telcos, Vodafone Idea Ltd and Bharti Airtel have a greater compulsion to raise tariffs than Jio, but it's unlikely that they would do so as it might benefit Jio in gaining more subs. For Jio, raising tariffs would not result in the loss of subscribers as this point because others may likely to follow suit.

Ratings agency ICRA thinks otherwise. In a December 4 note, ICRA said that the key drivers to improve profitability would be pricing improvement, and identifying new use cases for the telecom services. "The latter is a longer-term goal and would require more investments. But in the immediate term, it is the push for higher realisation which is achievable. But the competitive headwinds remain strong with most operators looking for greater entrenchment. Thus, the outlook for pricing restoration remains hazy and not so imminent," says ICRA.

Indian telecom market has reached a point where there's greater price inelasticity, which means that raising tariff would not affect demand. Telcos are now offering more or less similar plans to their prepaid subs, and have largely done away with smaller recharge packs, particularly Bharti Airtel and Vodafone Idea Ltd. One telco increasing tariffs followed by the two other, and the subs would not have any option but to pay more for the same services.