Telcos are likely to raise tariffs in the next two to three quarters, analysts believe, as they focus on value over volume growth. At the same time, given how companies have consolidated customer churn, they will want to limit SG&A (sales and marketing) costs to maintain margins, they added.
The entry level changes made by Jio and Airtel could be one way to raise tariffs as telcos wait for the right time to effect more structured hikes across packs.
The strategy: Phased price hikes
Last week, Reliance Jio moved the Rs 249, 28-day pack with 1GB daily allowance and the Rs 209, 22-day validity pack with 1GB daily allowance off its website. Airtel also discounted its 24-day plan which offered 1GB/day data and was priced at Rs 249.
“The current tariff tweaks are aimed at pushing 1.5GB/day plans to boost data usage. While this may be revenue neutral at present, further increase in data usage from 1.5GB/day to 2G/day will drive up ARPU of such subscribers by 17-19%, by our estimates,” analysts from Jefferies noted.
Further hikes will depend on the market’s ability to absorb a price increase. The differential between entry level 5G prepaid packs (those with 2GB daily allowance and above), and entry level postpaid packs is now as low as 30%.
“This used to be around 65%-70% around 3 years back. Telcos may increase the entry level post-paid prices. Post-paid customers tend to be stickier and have potential to add to share of wallet, so telcos may look at postpaid plans for a hike,” an expert said.
Typically, telcos have affected price increases at intervals of 18-24 months. Both Bharti Airtel and Vodafone Idea have been rallying for a change in the pricing structure of Indian telecom services, including more frequent tariff hikes.
The last round of tariff hikes in July 2024 resulted in 12-19% upswing in ARPUs for the three telcos.
Expanding revenue and targeting new segments
“Bharti Airtel and Reliance Jio saw revenue growth of 17-22% y-o-y, while Airtel’s India mobile Ebitda growth at 30% y-o-y was 10 percentage points ahead of Jio’s,” analysts from CLSA observed.
Another intervention on pricing could come from introducing usage tiers to ensure customers pay as per their usage, instead of paying a lumpsum for a high data allowance. This, both Airtel and Vodafone Idea have maintained, should be the norm that the industry moves towards in order to realise better returns on capital employed.