Both Reliance Jio Infocomm Ltd and Bharti Airtel Ltd raised tariffs by 14-54% in December. But the impact of the tariff hikes has played out differently for both companies.
In the past two quarters, Reliance Jio’s average revenue per user (Arpu) has risen by 9.3% to ₹140, while Arpu in Airtel’s India wireless division rose 16.3% in the same period to ₹157. This suggests Airtel has gained much more from the tariff hikes. But there’s more to it than meets the eye.
“Some of the difference is due to the way the two companies measure their subscriber count,” says an analyst at a domestic institutional brokerage requesting anonymity. “Airtel weeds out subscribers who haven’t paid for a while, which results in a drop in subscriber numbers, and a boost to Arpu. Jio, on the other hand, prefers to show strong subscriber growth numbers even though it ends up lowering Arpu,” he adds.
Indeed, in the past two quarters, while Airtel’s mobile subscriber base fell 1.1%, Jio has reported a 7.6% jump in the total number of users. Analysts also say the share of higher-value smartphone subscribers is rising at Airtel, while the share of relatively lower-value JioPhone subscribers is rising at Jio. Note that total data traffic carried on Airtel’s network rose by 30.5% in the past two quarters, while they rose by a much lower 17.5% in Jio’s case.
Given the dissimilarity in reporting subscriber count, some analysts prefer to compare the two firms by looking at revenue, the sum product of Arpu and subscriber count. At first look, Jio comes out looking better placed, with an 18.5% jump in revenues in the past two quarters. Airtel’s India wireless revenues grew at a slightly lower pace of 15.3%.
But note that Airtel’s international roaming revenues were hit due to the lockdown, whereas international roaming doesn’t meaningfully contribute to Jio’s revenues. Besides, Jio had started charging subscribers a fee for outgoing calls outside its network last year, which tilted its outgoing-incoming call ratio. As a result, from being a net payer of interconnect usage charges (IUC), Jio has become a net receiver of IUC. Jio has also recently begun charging its fixed broadband subscribers, which has also helped its revenues marginally. Adjusted for these, revenue growth of both companies is in a similar range, says the analyst quoted above. In terms of revenue market share, therefore, things remain the same as they were before the tariff hikes.
While that may be so, the way the incremental revenues have flown into the profit line is vastly different. Two quarters ago, Airtel’s India wireless business had a loss before interest and tax amounting to 7.4% of revenues. Post the tariff hikes, it has reported a profit amounting to 1.3% of revenues. In other words, profit margins have risen by 870 basis points.
For Reliance Jio, earnings before interest and tax (Ebit) margin fell by 130 basis points in the past two quarters. The company has been capitalizing some expenses related to its fixed broadband business. This is now happening to a lesser degree, resulting in an increase in some expenses, especially depreciation charges. But the end result is that 58% of Airtel’s incremental revenues have flown to the Ebit line, while in Jio’s case, the ratio is merely 18.5%.
It’s important here to note the wide difference in the profit margins of the two companies. While Airtel’s India wireless business has just managed to eke out a 1.3% Ebit margin post the tariff hikes, Jio’s Ebit margin is at 25.8% even after the jump in depreciation charges. While Airtel may have trumped in terms of profit growth in the past two quarters, it still has a long way to go.
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