A healthy hike

Telcos should now focus on quality of service

The telecom industry has taken a welcome step to raise tariffs, responding to the recent government package aimed at reviving the financially stressed sector. A comprehensive tariff hike in the range of 20 to 25 per cent in the telcos’ bread and butter prepaid category is expected to push up the average revenue per user (ARPU)—a key business metric— to nearly Rs 200 a month by early next year. A significant price hike after almost two years should offer room to the industry to invest more in infrastructure and quality of service, which has slipped drastically in a highly disruptive market focused on discounts. Also, it’s a move that’s likely to prevent a duopoly structure in the telecom sector.

By increasing tariffs themselves, telecom operators will be able to keep the regulator out of the pricing mechanism, though there was a call for a floor price by some telcos. That’s the only way for a promising private industry to grow. Telecom ARPU in India—hovering between Rs 109 and Rs 153 in the second quarter of 2021-22 for the three private firms—has been among the lowest in the world for long, while taxes and other payouts for telcos have remained higher than elsewhere. With a higher ARPU in sight, there could possibly be a sense of balance in the sector. While Bharti Airtel was the first to announce a tariff hike earlier this week in sync with Chairman Sunil Mittal’s target of an ARPU of Rs 200 a month by the end of this year and Rs 300 eventually, Vodafone Idea followed up a day later. Industry leader Reliance Jio, which had prompted the sector to compete aggressively on tariff without caring for financial health, is yet to take a call on prices.
 

Telcos must not stop here with a one-time tariff hike. Decisions on tariffs should be part of an ongoing business process for companies, keeping in mind their own financial health as well as their service quality. While affordable telecom service is a government objective to serve the rural hinterland, policymakers and telcos must not overlook the big picture of growth. They must also ensure that the telecom industry gets back its stature of an attractive investment destination for both domestic and global players. The government must also do more, not just through offering incentives and moratoriums, but by bringing policy stability into the sector. Annual spectrum auction is one such good initiative being taken by the government so that no telco feels left out if it has to give it a miss some year. More such steps should be considered for an environment of business certainty. 

With the 5G spectrum auction round the corner, there’s all the more reason for the telecom industry to be in good health as it prepares to invest what it takes to offer world-class cutting edge technology. As the 5G reserve price is under review and an overall spectrum policy is in the works, the auction process and the rollout of 5G services have already been delayed. Now that a government discussion has begun around 6G services, it’s time to put the house in order on all fronts, including innovative thinking for an industry that has a huge multiplier effect across the economy.