NEW DELHI: The tariff hike could boost the telecom sector’s average revenue per user (ARPU) by 15-20% to Rs 155-160 next fiscal, assuming Reliance Jio and Vodafone Idea follow Airtel’s suit, said analysts at CRISIL, adding that it will enable telecom operators to invest in rolling out 5G mobile services over the medium term.
“Key players had already invested ~Rs 5 lakh crore between fiscals 2017 and 2021 to roll out 4G services. Telcos would need to invest at least ~Rs 70,000 crore at the 5G spectrum auction likely next fiscal if the bidding is prudent,” Nitesh Jain, Director, and Rakshit Kachhal, Associate Director, CRISIL Ratings Limited, said in a joint statement.
Airtel today said that it will raise tariffs for all its prepaid plans by 20-25% to move towards a higher ARPU of Rs 200, and then ultimately 300.
“Bharti Airtel has always maintained that the mobile Average Revenue Per User (ARPU) needs to be at Rs 200 and ultimately at Rs 300, so as to provide a reasonable return on capital that allows for a financially healthy business model,” the telco said in an early morning statement.
This is the first time in several years that Airtel has hiked its tariffs. With the new tariff revision, Airtel’s base Rs 79 prepaid plan now costs Rs 99 while the high-end Rs 2,498 prepaid plan is revised to Rs 2,999.
Prashant Tarwadi, Director – Large Corporates at India Ratings and Research, said that the hikes would likely meaningfully improve Airtel’s ARPU as it was “one of the sharpest and most broad-based (spanning across various tariff plans) witnessed in the recent past. The tariff hike paves way for other telecom companies also to take similar pricing action; which would further reduce industry competitiveness and aid ROCEs.”
Airtel’s stock touched its all-time high of Rs 756 soon after opening on Monday, and was trading at Rs 742.60, up 4% on the BSE. Vodafone Idea shares also jumped 4.9% to Rs10.47 in hopes that the cash-strapped telco will also raise rates.
Vodafone Idea MD Ravinder Takkar during a recent post-earnings call had underscored that tariff hike remains essential to the sector’s continued survival.
“Some activity on tariff hikes has started to happen. Tariff hikes which are the next important step will also take (place) soon. For us, particularly as a company, we will not shy away from raising tariffs,” Takkar had said.
“Indian telcos have among the lowest average revenue per user per month (ARPU) in the world and subdued return on capital employed (RoCE), despite having second-highest average data traffic per user,” the CRISIL analysts said.
Telcos’ problems are further compounded by a trio of factors — high Capex, low ARPU, and sizeable adjusted gross revenue liabilities, which have “resulted in the sector’s RoCE sliding to ~3% last fiscal from ~8% in fiscal 2016.”
“Assuming other telcos follow suit, and given the rising data consumption, the current hike should increase the sector ARPU by 15-20% to Rs 155-160 next fiscal from ~Rs 135 last fiscal, and the RoCE to ~7%,” they added.
Furthermore, “Given the high operating leverage of the sector, the current tariff hikes will lift the sector’s Ebitda by ~40% to more than Rs 1 lakh crore in fiscal 2023 as compared to fiscal 2021,” they said.
The sector witnessed the last industry-wide hike in December 2019, which had raised the sector’s ARPU by about 15% and improved its Ebitda to nearly Rs 72,000 crore in fiscal 2021, the analysts said.