The telecom tariff hike of around 20-25%, which is expected to come after the parliamentary elections, may not lead to subscriber loss for the operators like Bharti Airtel and Jio, as chances of a major SIM card consolidation is ruled out.
According to analysts, the same can be attributed to two reasons. First, the increase in headline tariff hike will come after a gap of three years, and the users are expected to absorb it in the absence of any alternatives. Second, operators like Jio and Airtel now have users at mid-to-high end, who will be in a position to absorb the potential hike.
SIM card consolidation refers to reduction in connections by consumers owing to issues such as affordability of tariffs.
Analysts, however, did not rule out downtrading of users from higher tariff packs to lower tariff packs.
“In the past when we witnessed tariff hikes, we didn’t see all three telcos benefit equally. Basis the quality of the user base, we saw some SIM consolidation, downtrading by a few users,” said BofA Securities in a note on Thursday.
The brokerage added that “going ahead, we don’t see any material SIM consolidation on the back of a potential tariff hike”.
Going by the tariff hike of 2019, post six months of its implementation Airtel’s subscriber base was down 1%. Besides, Vodafone Idea’s base was down 7%. Jio, however, gained subscribers as its tariff hike was less comparatively and it had higher end users and no 2G subscribers.
In 2021, after six months of tariff hikes, Airtel subscribers base was up 1% as it had less price sensitive users, whereas Jio’s subscribers base was flat, analysis by BofA Securities showed.
In 2019, the average tariff hike was 20-45%, whereas in 2021 the hike was 20-25%.
The brokerage also upgraded Vodafone Idea to neutral from underperform on the basis of upcoming tariff hike and successful fundraise.
Post the upcoming tariff hikes after elections, analysts do expect another similar hike in FY27.
“Given that 5G is being offered for free, ARPUs have limited room to expand without tariff hikes,” said analysts at Jefferies.
In the absence of tariff hike, Jio’s Arpu at Rs 182 has been flat sequentially for the last two quarters. Besides, the company’s return on capital employed (ROCE) deteriorated further to sub-6% levels due to higher investments and absence of 5G monetisation and tariff hikes.
According to IIFL Securities, tariff hikes would help Jio shore up its return ratios in the run-up to the likely IPO of Jio Platforms in 2025.
“We raise our ARPU estimates by 1-2% and expect ARPUs to rise at 9% CAGR (compound annual growth rate) over FY24-27 to Rs 235 (for Jio) by FY27,” Jefferies said.
Airtel, on the other hand, expected to see its average revenue per user (Arpu) growing 38% to Rs 286 in the next three years, analysts said. The telecom operator’s Arpu at the end of October-December quarter was Rs 208.
According to Antique Stock Broking, the upcoming tariff hike will increase Airtel’s Arpu by Rs 55, and 2G to 4G migration will contribute another Rs 10, and customer upgradation to higher data plan as well as prepaid to postpaid conversion will contribute about Rs 14 to Airtel’s Arpu.
“We expect Bharti’s subscriber base to grow at 2% per annum against industry growth of 1%,” Antique Stock Broking said in a recent note.