To Raise Or Not To Raise: What Will 2024 Bring For Telecom Tariffs?

The year 2023 has drawn to a close without the much-needed tariff hikes for telecom companies.

Of the three Indian operators, beleaguered Vodafone Idea Ltd. needs to raise tariffs the most but is not in a position to take the lead. The carrier has been losing users, while its debt continues to rise. The telecom services provider has lost nearly 5.8 crore wireless subscribers since January 2021.

Tariffs do need to go up and the industry needs to become viable, Gopal Vittal, managing director and chief executive officer of Bharti Airtel Ltd., had said during second quarter earnings call. “You just have to time it and do it."

Telecom companies are likely to hike tariffs by 15-20% post elections, according to Piyush Pandey, vice president, institutional equity research for IT, telecom and internet at Yes Securities, told NDTV Profit. He anticipates Airtel to take the lead.

While, Com First (India) Director Mahesh Uppal sees a “slow rise in tariffs over the next year", instead of a massive one.

A gradual increase in tariffs may start even before the elections are over, he said. The extent of tariff hikes will depend on market dynamics and the response of the competitors—if one player goes ahead and triggers price raise unilaterally, he said.

They don’t expect Vodafone Idea to raise tariffs, even though the company needs it the most, with a negative net worth and no funding in sight.

Even with the biggest market share of 39% as of September, Reliance Jio Infocomm Ltd.'s average revenue per user is trailing.

This is in contrast with its competitor Bharti Airtel, that already commands a higher ARPU, with a 33% market share.

Airtel’s reported wireless ARPU in the second quarter of FY24 stood at Rs 203. While, Jio’s ARPU was at Rs 181.7. Notably, Jio reports a combined ARPU for all its services. This implies that the wireless ARPU could be even lower.

ARPU in India is still one of the lowest at $2.2/month, compared to a global average of $8-10/month ($6.9/month in China), according to JM Financial Ltd. India’s ARPU to GDP per capita is as low as 1% in FY23 versus +1.5% before FY15.

However, despite the lowest ARPU, India’s Average Monthly Data Usage or AMDU per data subscriber is the highest globally, and is still rising despite tariff hikes, the brokerage said. It has risen from 11GB/month in Q2 FY20 (before start of tariff hikes) to 23.2GB/month in Q2 FY24.

Despite its capex spends on 5G, Jio seems unwilling to hike tariffs as it continues to focus on customer acquisition.

With “so much spent” on 5G capex, Jio would also want to raise prices, but it won’t be the first one to do so, according to Pandey.

The RIL subsidiary has spent over Rs 38,000 crore, primarily towards 5G rollout, while Airtel’s second quarter spending on capex was over Rs 7,700 crore.

However, both the companies expect the capex intensity to moderate by the end of this fiscal.

Telecom is a “vanilla product” where brand value of the service doesn’t carry much weight for its users, said Uppal.

“The tariff hike is sustainable only if all players are willing to carry it out. Because, in the absence of this coordination or this willingness to go along, the chances of any player raising tariffs, while others don't, means that that player will become uncompetitive,” he said.

However, India wireless ARPU is on a structural uptrend, given the consolidated industry structure and future investment needs, according to JM Financial. The industry requires an ARPU of Rs 270-300, it said.

The brokerage expects that a near-term delay in tariff hike is “likely to only strengthen Bharti/Jio’s pricing power and market share, as it could expedite the transition to a duopoly market”.