Airtel, Jio, Vodafone Idea push for long-term recharges amid price hike

Leading telecom operators are targeting users with 365-day plans priced between Rs 2,545 and Rs 3,099 through aggressive in-app promotions

With telecom pack prices set to increase by up to 25 per cent starting July 3-4, telecos are actively encouraging subscribers to recharge their plans at current rates to evade the upcoming hike, reported The Economic Times.

Leading telecom operators Bharti Airtel, Reliance Jio, and Vodafone Idea (Vi) are targeting users with 365-day plans, priced between Rs 2,545 and Rs 3,099, through aggressive in-app promotions. These efforts aim to lock in customers at old rates and mitigate customer attrition.

“Clearly there has been a substantial spike in daily volume of recharges for all spectrums of validity and all three telecom companies are advertising through in-app promotions, the offline retail network as well as payment aggregators,” a telecom company executive was quoted as saying to The Economic Times.

 

Paytm, a leading mobile recharge platform, reported a 15-20 per cent increase in daily recharges. “There’s also a growing preference for long-term plans,” a Paytm spokesperson said.

Analysts believe this strategy, while leading to recharges at lower prices, will ensure subscribers stay with their current operators for at least a year. However, there is scepticism about its effectiveness, as many telecom users typically opt for shorter-term plans.

“I am sure there will be anecdotal instances where subscribers will want to recharge in this 4-5 days’ window to save costs. However, the number of subscribers who have the propensity to recharge for 365 days is very low. For instance, for Airtel and Vodafone Idea, 28-day plans are the most common, while for Jio, it is a mix of 28 days and 84 days,” Balaji Subramanian, vice president at stock research firm IIFL Securities, said.

In rural markets, price-sensitive customers tend to prefer daily data plans over monthly packs, Subramanian said, while adding that some rural households might also abandon dual SIM usage.

“That said, as observed in the last two rounds of price increase, a 20 per cent tariff hike has caused a flow through of 14-15 per cent to companies’ revenues, which shall be the case this time as well,” he added.

Meanwhile, the share of telecom expenditure in urban households could rise to 2.8 per cent in FY25 from 2.7 per cent in FY24, and to 4.7 per cent from 4.5 per cent in rural households, according to the Axis Capital report.

As a result, CareEdge Ratings projects that the revised tariffs will boost the blended average revenue per user (ARPU) by about 15 per cent, reaching Rs 220 in FY25 from approximately Rs 191 in FY24. 

Each Re 1 increase in ARPU could add about Rs 1,000 crore to the industry’s PBILDT (profit before interest lease depreciation and tax).

ICICI Securities attributes revenue leaks during price hikes to SIM consolidation. “Nonetheless, operators have managed to prevent major downgrades or mass customer exits,” its report states. Airtel achieved the best tariff translation in 2019 and 2021 tariff hikes, while Jio’s performance improved significantly in November 2021. VIL, however, faced challenges due to SIM consolidation and subscriber churn.

Market experts anticipate lower risks of downtrading, as demand for telecom services remains inelastic and data usage is becoming more consistent.

JP Morgan’s report suggests that SIM consolidation could be less significant this time. “Bharti’s lower tariff hikes at entry levels may contain churn and downtrading impact,” it stated.

Bank of America Securities highlighted VIL’s vulnerability due to its network coverage improvements taking another six months. This could result in continued user losses, particularly among those seeking better coverage with higher payments.

Axis Capital concluded that the impact of the current tariff increase on household telecom expenditure is modest, both in urban and rural areas.

“The analysis shows that the 13 per cent increase in tariff is moderate, and unlikely to have much of an impact on household expenditure. The analysis also shows that even Jio’s higher increase in tariffs and 5G monetisation is likely to be well absorbed by consumers,” the report noted.