Arpu vs users: Telecom tariff hikes in July trigger surprising trends

If monthly Arpu (average revenue per user) is like a currency to evaluate the health of a telecom operator, subscriber numbers are its mainstay. Recent developments establish that the two most critical metrics in the telecom universe — Arpu and subscriber numbers — are two sides of the same coin, with tariff being the proverbial X factor.  

 

After 30 months of holding on to the same tariff levels fearing that any hike would trigger loss of customers, companies decided to bite the bullet in July this year and raised prices across the board.

 

The subscriber churn has not stopped ever since. In fact, India’s telecom market has thrown up more surprising numbers than anyone was willing to predict.

 

Not surprisingly, the industry is not rushing into a debate around the quality of subscribers, the difference between pre-paid and post-paid customers, and the cost of acquisition of users at this point. The next round of tariff hike — though necessary to inch closer to the international levels — can wait.

 

A senior executive at a leading telco told Business Standard recently that his company would not risk losing more customers by raising tariffs. For good reason. 

 

Subscriber churn

 

Reliance Jio, Bharti Airtel, and Vodafone Idea (Vi) have cumulatively lost 23.07 million subscribers in the second quarter (July-September) of FY25. Meanwhile, public sector telecom operator Bharat Sanchar Nigam Ltd (BSNL) saw its fortunes rise with 6.3 million new mobile customers. 

 

Breaking a record logjam of two and a half years, all three private sector telcos raised tariffs. Bharti Airtel and Vi announced a hike in mobile tariffs by up to 21 per cent, while Jio raised them by 12-25 per cent. BSNL stayed away from any tariff hike.

 

Before this, average prices had been raised by 20 per cent during the last industry-wide tariff hikes in December 2021. That had seen SIM consolidation of 4 to per cent. Bharti Airtel had led the increase at that point. Prior to that, prices had last risen in 2019, when Vi was the first to take the call.

 

Under pressure to supercharge the sluggish growth in monthly Arpus, all three private firms unanimously backed the hike this time, raising tariffs within 24 hours of one another.

 

On a customer addition spree since early 2022, market leader Jio saw a dip in its user base in July for the first time in more than two years. Initially moderate at 0.75 million, the number of customers leaving the service increased to 7.95 million by September, resulting in the telco ending Q2 with 12.72 million fewer users. Analysts point out that Jio had seen a bigger dip after the December 2021 hike.

 

Winners and losers

 

BSNL was caught in its own plight while trying to launch 4G services and still planning for 5G. In July, the BSNL Employees Union called the industry-wide tariff hike arbitrary. However, the firm has reaped the biggest reward from the tariff hikes of the private sector trio.

 

With BSNL keeping its tariffs unchanged, a large number of subscribers using entry-level plans shifted to the state-owned telco. After losing subscribers for two straight years, it added 2.9 million users in July. While the pace of customer additions reduced to 0.84 million in September, Q2 has given the management of the telco a glimpse of what may be possible.

 

"This has shown a large chunk of entry level users remain open to an alternative service provider. More importantly, these few months have proven that even many 4G users are looking for more competitive prices if they get quality service," a senior BSNL official said.

 

The loss-making firm aims to roll out its home grown 4G network nationwide with 100,000 towers by the middle of next year. It is confident about the stickiness of the new users and hopes to build on them.

 

However, despite the additions, BSNL had 1.61 million fewer users at the end of September this year than in September 2023. In October, BSNL Chairman and Managing Director Robert J Ravi made a statement that got noticed — that the telco will not raise tariffs in the foreseeable future. That is a contrast to Bharti Group Chairman Sunil Bharti Mittal’s constant reminder to the industry that tariff hike is the only way and that Bharti Airtel would not shy away from it.

 

Analysts believe the market may be shifting back soon. “A large part of SIM consolidation has already happened in the last few months, which has resulted in moderation in the subscriber addition rate,’’ says Ankit Jain, vice-president, and sector head at ICRA Ltd. “There has been some churn from the incumbents towards BSNL, largely estimated to be low income generating subscribers.”

 

In all this, Vi has seen a double whammy. While entry-level users left the telco for the cheaper plans of BSNL, the lack of 5G services has prompted the higher-end users to shift to Jio and Airtel.

 

As a result, the financially beleaguered telco has lost more than 10.5 million users in the first nine months of this year. The trend has further complicated its plans of raising debt funding from banks. Despite adding a record Rs 42,000 4G sites in Q2, the company’s 4G subscriber base was impacted by the tariff hikes, and shrank by 0.8 million to 125.9 million. Before this, Vi had recorded 11 straight quarters of 4G subscriber additions. 

 

Bigger impact

 

The hike’s biggest impact has been the customer churn: India’s mobile service market has lost 16.81 million connections since July.

 

Coming to the crucial cost factor, an analyst points out that out of the three private telecom operators, Jio still has the cheapest plans. Its prices are lower by 7 to 13 per cent. “So, it does not make sense for customers to move from Jio to BSNL. People relinquished their extra connections,”he says.

 

But the tariff hike is influencing the pace of adoption of 5G. Jio gained 22 million 5G users in Q1 FY25, which fell to 18 million new additions in Q2. After logging in 18 million new 5G customers in Q1, Airtel did not reveal the number for Q2. Based on the last reported numbers, Jio had 148 million 5G users, and Airtel had 90 million. Taken together, they represent a fifth of the 1.16 billion mobile connections in the country as of September-end.

 

Both have offered 5G services at 4G prices.

 

Experts believe a return to the pre-tariff-hike status is around the corner in this cost-sensitivemarket. Need for further tariff repair, as Airtel CEO Gopal Vittal mentioned recently, is indeed in the air, but it must wait.