Telecom tariff hike augurs well for Airtel, industry-wide revision likely

After about two years, the financially-stressed telecom sector will witness a comprehensive tariff hike including in the prepaid category, which makes up for a major chunk of the user base and revenue of any telco. Bharti Airtel took the plunge on Monday, announcing an average 20 per cent tariff hike across all prepaid packs and 25 per cent at entry. The move is expected to kick off a much awaited industry-wide price increase after the last significant hike in December 2019.

This follows Bharti group chairman Sunil Mittal’s statement recently that the company wouldn’t shy away from raising tariffs while he referred to the disruptive low prices in the industry. He’s been looking at an ARPU (average revenue per user per month)—a key business metric—of at least Rs 200 by the end of this financial year and then Rs 300 eventually. Bharti Airtel had recorded an ARPU of Rs 153 per user per month during the second quarter of FY22, against Reliance Jio’s Rs 143 and Vodafone Idea’s Rs 109.    

Shares of Airtel surged 6 per cent intraday to hit an all-time high of Rs 756 apiece on the BSE following the announcement. The stock closed at Rs 742.05, up 3.9 per cent.

Sources in the know said the government had pressed the need for a tariff hike in meetings with telcos, especially after its announcement of a relief package for the industry. Vodafone Idea, which is facing a debt pile-up, is likely to announce a tariff hike soon, sources said. Reliance Jio, which had prompted the tariff war through deep discounts, may also follow suit.

Analysts pointed out that further tariff hikes could come in the next 18-24 months as the aim is to hit an ARPU of Rs 300 per user per month.

With 80 per cent of its revenues coming from prepaid, analysts projected Airtel’s ARPU to go up to Rs 185 by the first quarter FY23 once the full impact of the hike is reflected. The hike would help its EBITDA to go up by around Rs 7,000 crore (a 13.5 per cent rise).

In the case of Vodafone Idea, a similar hike would increase its ARPU to Rs 127 (a hike of Rs 18). The additional EBIDTA would be Rs 4,000 crore--4,200 crore. According to estimates by Edelweiss, while it might help Vodafone Idea raise capital to repay the debt, it will require the ARPU to nearly double over the next three to four years for its business to sustain.  

In the case of Jio, the company would see an additional EBIDTA increase of 25 per cent (Rs 9,500-10,000 crore) and its ARPU could hit Rs 180 (an increase of around Rs 30).

Industry watchers are also looking at the impact of the higher tariff, including the 25 per cent entry level increase, on consolidation of SIMs, industry net add slowdown and downtrading in price sensitive customers.   

A BofA (Bank of America) Global Research says that the magnitude of the hike should have been steeper at around 30 per cent. As a result, they expect more hikes in the next 12-18 months.  But there are others who argue that Jio, with its customer acquisition spree through Jio smart phones in venture with Google, may have stymied any such move as it gets closer to its target to grab 500 million subcribers (from 424 million currently). 

Discussions on a tariff hike had been stuck for months because of differences among telcos on the issue, according to sources involved in the discussions. A top executive of Airtel had said that the company would not like to take a lead in such a hike, as its tariffs were 15-20 per cent higher than Jio, and risk losing the market share. Mittal himself had said a few months ago that the ‘’industry leader’’, referring to Jio, should take the first step.

Those aware of Jio’s stance say the company’s reluctance emanated from the fact that an increase in tariff agreed by the industry in December 2019 was not followed by rivals. Some players started giving discount offers on certain segments to retain customers, in the process diluting the agreement, sources close to Jio pointed out. These tariff hikes were not disclosed to the regulator (the matter was taken up by the regulator in court), they said. The company has suggested a regulatory mechanism to prevent a repeat of what happened two years ago.