Shares of Indian telecom operators took a beating on Tuesday, a day after 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.
“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. “While the price point is competitive…we do not view this as immediately disruptive for Bharti but would be watchful,” the brokerage said.Shares of parent Reliance Industries fell 1.5% on Tuesday.