Reliance Jio-Facebook deal: 'Unlikely to spark any fresh round of tariff war', says brokerage firm Jefferies

Reliance Jio's tariffs are already at a 7-20 percent discount to those of peers.

FP Staff April 22, 2020 20:37:18 IST
Reliance Jio-Facebook deal: 'Unlikely to spark any fresh round of tariff war', says brokerage firm Jefferies

There is unlikely to be a fresh round of tariff war with Facebook inking $5.7 billion investment in Reliance Industries' subsidiary Jio Platforms.

Broking firm Jefferies said: "Aggression suits a new entrant and not a market leader. If Jio cuts tariffs, it hurts itself the most," it said in a note to clients.

Jefferies analysts Akshat Agarwal and Pratik Chaudhuri point out that Reliance Jio's tariffs are already at a 7-20 percent discount to those of peers. Also, the JioPhone offering should help the company remain competitive and boost subscriber additions as it has in the past, they say.

Reliance JioFacebook deal Unlikely to spark any fresh round of tariff war says brokerage firm Jefferies

Representational image. News18.

"However, we do note that the likelihood of further tariff hikes in 2020 will likely reduce. We see limited risks to our estimates due to this as in our forecasts for Bharti Airtel, we assume a mere 10 percent tariff hike in 1HFY22," the Jefferies note says.

Jefferies says the transaction reflects a turnaround for the sector, and has retained its buy call on Bharti.

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"We maintain that Bharti Airtel is a direct way to play this ongoing turnaround. The current tariff discipline and expected decline in spectrum pricing are long-term positives for the sector, given the high $30 billion worth entry barriers which will sustain the current pseudo-duopoly market structure," teh Jefferies note says.

(Disclaimer: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd which publishes Firstpost)

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