Time for telcos to reap gains from tariff hike: EY's Prashant Singhal

Reduction in levies and tariff hikes are required for telecom operators in the country to reap the benefit of investments they have made in digital infrastructure, according to experts in the sector.

Private operators have invested around Rs 70,000 crore in telecom infrastructure and radiowave assets this year to expand the coverage of next-generation 5G services in 2024 for the sector.

However, the challenge is to keep 180 million 2G customers connected and encourage them to move to 4G for inclusive growth.

"Telecom sector levies need to be rationalised, India is the highest on levies and still one of the lowest on tariffs. Innovation in tariff structure may come in with high usage customers paying more and entry level data users still at similar rates," EY India Markets and Telecom leader Prashant Singhal said.

 

He said that India still had over 18 crore 2G customers who need to move to the 4G bandwagon in 2025 may see that happening.

"The investments made by telecom companies have been the backbone of the digital economy on which the entire start-up ecosystem has gained and it's time for the sector to reap returns on investments by rationalisation of levies and increase in tariff," Singhal said.

Bharti Airtel and Vodafone Idea have repeatedly emphasised the need for increasing average revenue per user (ARPU) to the level of Rs 300.

Post tariff hike in July, Vodafone Idea ARPU increased 7.8 per cent to Rs 166 on a quarter-over-quarter basis from Rs 154 in April-June. Bharti Airtel posted a 10.4 per cent increase in the July-September quarter to Rs 233 from Rs 211 in the first quarter of 2024-25 and Jio's ARPU increased to Rs 195.1 from Rs 181.7.

The tariff hike by the private telecom operators in July, however, backfired.

Around 2 crore subscribers dropped their connections. Reliance Jio, Bharti Airtel and Vodafone Idea jointly lost 2.6 crore customers due to a 10-26 per cent price hike.

Around 68 customers switched to state-run player BSNL which refrained from price hike. The loss-making PSU still offers generation-old 3G service and is on the path of rolling out 4G networks across the country.

The subscriber growth on Bharti Airtel network generated some hope for the sector as some analysts attributed the growth to the inability of BSNL to service them.

Bharti Airtel added 19.28 lakh users to its wireless coffers during the month and its active subscriber gains were about 27.23 lakh for October.

Vodafone Idea lost 19.77 lakh wireless subscribers and its active subscriber base fell to nearly 7.23 lakh users.

Overall, so far as headline numbers are concerned, Reliance Jio's total wireless tally slipped to 46 crore in October down from about 46.37 crore in September, although its active user base (a key monitorable for telcos) strengthened.

According to a Morgan Stanley report, Bharti Airtel saw major net additions in rural regions while it lost subscribers in urban regions in October. RJio gained subscribers in metros and major circles while it lost customers in smaller circles while VIL's subs loss remained broad based in October.

Digital Infrastructure Providers Association (DIPA) Director General Manoj Kumar Singh says the telecom infrastructure sector looks at a cumulative investment of Rs 92,100 crore to Rs 1.41 lakh crore in 2022-2027 to support the 5G ecosystem.

According to a JM Financial Report on the second quarter performance of Bharti Airtel, Indian mobile services business tariff hikes are likely to be more frequent, going forward, given the consolidated industry structure and higher ARPU requirement for Jio also to justify significant 5G capex and given Jio's potential IPO.