The Telecom Tariff Hike

The players in Indian telecom Industry have faced a stretch of turmoil in the last 5 years. Right from the point in 2015 where 1 GB of data cost Rs 226 per GB to Rs 7 per GB in 2021, the journey has been an exuberant one for some players and a distressing one for other players. An oligopoly market was saved by the government from turning into a duopoly by deferring the AGR dues by another 4 years. Though this lifeline has been granted by the government, it becomes imperative for Bharti Airtel and Vi to put sustainable business models in place for meeting their obligations. Time and again, Airtel has been arguing that tariff hikes are needed to create such sustainable model. The recent tariff hike from 26th November, which will make the prepaid plans offered by the company costlier by as much as 25% can be seen as a strategic move in that direction. After this announcement, the stock rallied by 9% in 3 days and hit a 52-week high.

Why tariff hike is important for Bharti Airtel?
The company endeavours to extract maximum ARPU from the existing users instead of pursuing an aggressive market share expansion strategy. The churn rates (which increased significantly due to Jio) of the company have been decreasing. This gives Airtel the confidence to hike their prices and increase their ARPU. The current ARPU stands at nearly ₹150, while the company wants it to reach ₹200 in short run and ₹300 in long run, so as to meet the huge investments required in spectrum and network capabilities. Raising the ARPU also becomes essential to meet the ₹40,000 crores AGR dues liability soon after the 4-year moratorium ends. The price hike is expected to increase the revenue by 15%. Along with the AGR dues relief, tariff hike and its current positioning in the industry structure make the company’s future prospects look bright. The Q2 results exemplify the same. The QoQ profit jumped by 300%, revenue rose by 5.3% and the ARPU went up from ₹143 to ₹153. The Indian business of the company is now debt free. Various brokerages like Sharekhan, Anand Rathi and Motilal Oswal have given a ‘Buy’ rating on the stock. Moody’s has also raised its outlook from stable to positive.

What does the tariff hike mean for the industry?
The industry has long been operating at low ARPUs and offering very cheap services when compared to international standards. The tariff hike by Airtel gives Vodafone Idea and Reliance Jio a reason to increase their prices. Vi has already followed the suit by increasing its tariff, and Jio is expected to do so. Thus, an increase in tariff is expected to be witnessed across the industry and seems to be reasonable owing to the high investment requirements for building the digital infrastructure for the country. What lies ahead for the industry as well as the users will be something to watch out for!

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