Shares of Bharti Airtel and Idea Cellular lost up to 10% on the bourses after Mukesh Ambani, Chairman of Reliance Industries (RIL) at the company's annual general meeting today announced the launch of Reliance Jio 4G services offering free voice calls for Jio customers and zero roaming charges across India from September 5 to December 31, 2016.
Idea Cellular dipped 10% to Rs 83.70, its lowest level since October 30, 2012 on the BSE after the news report. The trading volumes on the counter jumped nearly seven-fold with a combined 48.93 million shares changed hands on the BSE and NSE.
"The launch of Reliance Jio was much awaited and is very much welcome. Tariff plans for voice and data is going to be a game changer for telecom industry. As for Reliance, its large part of capital employed in telecom segment around Rs 1.35-lakh crore will start delivering revenues. Though, top line from telecom business will start trickling in however; big concern arises on timelines of achieving operating break-even point in context of tariff policy deployed," said Dharmesh Kant, head of retail research at Motilal Oswal Securities in a note.
Bharti Airtel slipped 9% to Rs 302 on the BSE in intra-day trade with combined 27.35 million shares changed hands on the counter on both the exchanges.
Reliance Communications lost 5.3% and hit Rs 51 levels on the BSE, with combined 5.5 million shares traded on both the stock exchanges.
Reliance Industries, too, is trading 1% lower at Rs 1,049, after hitting intra-day high of Rs 1,073 on the BSE. The S&P BSE Sensex was up 0.26% at 28,527 at 01:43 pm.
"We expect, Reliance Industries stock to remain under pressure in the near-to-medium term. Investors will closely monitor the roll out and effectiveness of Reliance Jio, in conjunction with plans by competitors to tackle new scenario," Kant of Motilal Oswal adds.
Given the development, analysts believe that data tariffs are bound to see a major correction, while the benefits from higher data volumes as well as subscriber growth will be back-ended. The existing top telcos (Bharti Airtel, Vodafone and Idea) have already undertaken pre-emptive price cuts by offering higher data volumes for similar pricing to retain their customers, they say.
"Ind-Ra believes that RJio launch will accelerate 4G adoption in India helped by its attractive tariffs, low cost handset pricing, perceived superior quality of services driven by its huge investment in network," points out Tanu Sharma, Associate Director – Large Corporates, India Ratings & Research.
"RJio may look to disrupt some of the prominent geographies of existing operators, leading to a re-distribution of the market share which is concentrated among the top three operators, in FY17. 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 RJio," Sharma adds.