Reliance Jio Infocomm Ltd’s latest tariff revision is the unkindest cut of all. The company is offering an unlimited voice plan to its feature phone users, with 1GB of data thrown in, at just Rs49 for a 28-day billing cycle. It had earlier unveiled a similar plan for smartphone users, with 2GB of data usage, at Rs98.

Less than a week ago, Idea Cellular Ltd had suggested on a conference call with analysts that it will ring-fence customers who mainly use voice services and are light data users. But with the new entrant now targeting this very segment with extremely low tariffs, another bastion is set to fall for the incumbents.

Idea and Vodafone India Ltd are particularly vulnerable, as the former’s December quarter results show. And given their added burden of completing a mega merger, Jio appears to be going for the kill by trying to capture as much share of the market as possible within the quickest possible time.

An analyst who attended Idea’s conference call says, “You almost got the impression Idea was pleading with Jio and Bharti Airtel Ltd to end the tariff war." But leave alone ending the price war, Jio is opening up new fronts.

All this is happening at a time when Idea, in particular, is in a very precarious position. Its net debt-to-Ebitda ratio rose to an unwieldy 11 times in the December quarter, and while a sale of equity shares to promoters will help bring it down a bit, the company’s chief financial officer said on the call that leverage ratios will come to reasonable levels only when Ebitda is repaired. But now, Idea’s profitability will be wrecked rather than repaired. Analysts at Kotak Institutional Equities estimated in a 25 January note that the Idea-Vodafone combine’s Ebitda will decline by around 45% in fiscal year 2019, versus an earlier estimate of growth of about 20% predicated on rising tariffs. Ebitda stands for earnings before interest, tax, depreciation and amortization.

In fact, with Jio’s latest disruption, Idea may even struggle with its plans of selling additional shares worth Rs3,500 crore. And with incumbents expected to bleed much longer, it stands to reason that valuations of tower companies, an ancillary industry, will suffer. As such, the expected relief from the Indus Towers Ltd sale may also be limited.

In short, Idea and Vodafone seem to be cornered with high leverage, relatively low liquidity and cash flow limiting their ability to fight effectively and retain market share.

It’s important to note that while Jio is inflicting great pain on incumbents, it is doing this at a great cost to itself.

“This development (Jio’s latest tariff revision) smashes our earlier theses of Jio not launching plans below a certain monthly commitment," Kotak’s analysts wrote in a note to clients. Jio reported Arpu (average revenue per user) of Rs154 in the December quarter. Customers who avail of the latest plans will generate Arpus that are at a 71% and 41.5% discount to the current company average. And that’s not all. It has both lowered tariffs and increased data allowance for heavy data users. All other things remaining the same, this will impact Ebitda of Jio’s smartphone segment by around 37% vis-à-vis December quarter levels, analysts at Jefferies India pointed out in a note to clients.

In short, no cost seems to be too high in Jio’s quest to capture a majority share of India’s wireless market.

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