Telecom stocks take hit after Jio taps rural market with $12 4G phone

economictimes.indiatimes.com:

Reliance Jio revealed plans to launch a $12 4G phone to capture the broadly untapped entry-level 2G market in India. The new phone could drive Jio's subscriber additions by 20-22 million annually, boosting its revenue and operating earnings by 2-3% in the next fiscal year, analysts at Jefferies wrote in a note. It could also hit the revenue and operating earnings of rival Bharti Airtel by 1-2% during this period, the analysts added.

Shares of rivals Bharti Airtel and Vodafone Idea slipped between 2% and 3% in early trading. In the past, Jio had disrupted the Indian telecom sector by introducing cut-price tariffs. With this move, it plans to roll out entry-level phones equipped with internet services, like digital payment, to reach the roughly 250 million 2G users who are yet to migrate to smartphones.

«The launch… could potentially raise concerns on rising competitive intensity even at the lower end, especially when incumbents (Bharti and Vodafone Idea) have raised the prices for entry-level packs sharply,» analysts at Kotak Institutional Equities said. Bharti Airtel, which has a bigger share in the 2G market with a 54% subscriber base, could feel the heat the most, per the Jefferies analysts. Meanwhile, Morgan Stanley sees Jio taking 15-16 months before breaking even for a user.