It has been some time now that everyone, from analysts, investors and companies themselves, have been stating that the current pricing in the telecom industry is not sustainable and tariffs need to go up across the board. On Monday, Bharti Airtel took the lead raising tariffs on its prepaid plans by 20-25 per cent.
Earlier in July, the company had raised the base recharge plan tariff to Rs 79 from Rs 49 for prepaid customers. Vodafone Idea had followed suit and made the Rs 79 plan as its entry level prepaid pack in most circles. But, the tariff hike announced on Monday by Airtel, will be more comprehensive and broad based.
Telecom companies had earlier raised tariffs by up to 40 per cent in the prepaid segment back in December 2019. The latest tariff hikes by Airtel, which will be effective November 26, will see the base Rs 79 pack with 28 days validity now costing Rs 99. Prices of its other prepaid plans ranging from 28 days validity all the way to its annual packs will also see a hike between Rs 30 to Rs 500.
In the last few years, the entry of Reliance Jio has led to a huge jump in consumption of telecom data. But, India is also a market where prices are among the lowest in the world. Telecom companies made voice calls free and also slashed data prices.
At the end of September, Bharti Airtel had an ARPU of Rs 153, Reliance Jio’s was at Rs 143.6 and that of Vodafone Idea at Rs 109.
However, these prices were not going to be sustainable for ever. Companies need to keep investing in strengthening their 4G network coverage as data consumption continues to grow and more people shift away from 2G. At the same time, companies will need funds to invest in 5G. So, fund raising as well as increasing tariffs was inevitable.
“Bharti Airtel has always maintained that the mobile ARPU needs to be at Rs 200 and ultimately at Rs 300, so as to provide a reasonable return on capital that allows for a financially healthy business model. We also believe that this level of ARPU will enable the substantial investments required in networks and spectrum. Even more important, this will give Airtel the elbow room to roll out 5G in India,” it said in a statement.
Will others follow suit? VI, which reported a Rs 7,132 crore loss in the September quarter and has the lowest ARPUs among the private telcos, desperately needs to raise funds. So, it may well follow in the footsteps of Airtel and raise tariffs too. There has been no intimation from the company yet.
However, speaking recently after the company’s second quarter earnings, Ravinder Takkar, the CEO of VI had indicated that a tariff hike was likely to happen soon.
“VI remains the weakest private telco. The need for capitalisation is urgent, mainly due to its upcoming debt repayment requirement, lagging spends on network and continued relative market share loss,” Bhupendra Tiwari, analyst at ICICI Direct, the retail broking arm of ICICI Securities said in a report last week.
Reliance Jio, which leads the market in terms of subscribers, may not hike its tariffs any time soon. However, when the company launched the JioPhone Next smartphone in partnership with Google on the eve of Diwali, the bundled mobile recharge plans for the phone were at a 20-30 per cent premium to current comparable daily data plans for other smartphone users. That analysts said was perhaps a sign that tariffs across the board may eventually head upwards.
The government recently announced a slew of relief measures for the telecom sector. This included a four-year moratorium on payment of dues and the definition of adjusted gross revenue was also rationalised to exclude non-telecom revenue of companies in future.
“While these measures have definitely increased the attractiveness of the sector from an investments point of view (which is critical for the incumbents), the overall viability of the sector will not improve unless tariffs also undergo a change,” said analysts at Brickwork Ratings.
The analysts feel that average ARPUs need to go up by 30-40 per cent at least for the long-term resolution of the telecom sector woes.
The tariff hike by Airtel on Monday gave telecom stocks a lift even as the broader market traded sharply lower. Bharti Airtel shares hit a 52-week high of Rs 756 and were trading up over 3 per cent in the afternoon trade at Rs 735.65. VI shares hit a intra-day high of Rs 10.88 on the BSE and were trading 4 per cent higher at Rs 10.42. The wider BSE Sensex was down 961 points to 58,674.63 points.