In order to achieve its target of monthly average revenue per user (Arpu) of Rs 200 within the current fiscal, Bharti Airtel has embarked on a market testing initiative. The country’s second-largest telecom service provider has raised the entry-level tariff in two circles – Haryana and Odisha – by a massive 57%. Accordingly, the starting tariff package (24 days) for 2G subscribers in these two circles is now Rs 155 from the earlier Rs 99.
During the July-September quarter, Bharti’s Arpu had seen a jump of 3.8% quarter-on-quarter to Rs 190, which is higher than Jio’s Rs 177.2 and Vodafone Idea’s Rs 131.
Bharti wants to test the market with this move and if it sees users upgrading to the Rs 155 pack instead of leaving the network, it is likely to hike the same across other circles in one go or in a staggered manner, sources aware of the developments told FE.
Bharti had done a similar market-testing exercise in November 2021 when it increased its minimum recharge offer from Rs 79 to Rs 99 in select circles.
Haryana and Odisha circles together contributed 4.4% of Bharti’ adjusted gross revenue during the April-June quarter. In terms of subscriber base, the two circles comprise 4.8% of Bharti’s total user base with 2G users making 33% of the total user base. The adjusted gross revenue (AGR) figures for the July-September quarter are yet to be released by the Telecom Regulatory Authority of India.
According to analysts, the risks are minimal because the starting tariffs at Reliance Jio, which is Bharti’s closest competitor, also starts at Rs 155. Further, since Jio is a fully 4G network, a 2G subscriber moving from Bharti needs to upgrade to a new handset (JioPhone). This leaves Vodafone Idea where the entry-level tariff is at Rs 99. However, analysts said that the threat of losing users is slim because if Bharti’s strategy works, there is every likelihood that Vodafone Idea may follow suit as it needs to improve its Arpu.
“Bharti has taken a calculated risk to check how customers respond, and this pack is largely being sold to 2G customers only. It does not impact the remunerative 4G customers. Besides, peers cannot take advantage of the situation to poach its 4G customers,” analysts at ICICI Securities said.
“We believe the current move highlights the strong intent of Bharti to lead the next round of tariff hikes, although it is critical to see if the competition will follow suit and if this will eventually percolate up to higher Arpu buckets of 4G consumers,” Morgan Stanley said.
Analysts are not sure at this point whether Bharti would hike tariffs on its 4G packs following this move. The reason being that 4G tariffs of Bharti’s are at premium to Jio’s, so it cannot risk being a lone player in raising rates. However, if the industry as a whole hikes tariffs, Bharti’s could be a tad higher than Jio’s.
Bharti had increased tariffs on certain postpaid plans across retail and enterprise segments during the July-September period of calendar year 2021. Later in November, it had increased the prepaid tariffs across all price points by 20-25%, including unlimited plans as well as combo vouchers.
In February, Gopal Vittal, managing director and CEO (India & South Asia), had said, “I do expect a tariff hike sometime in 2022, but don’t think it’s going to happen in the next 3-4 months simply because of the SIM consolidation and growth needs to come back…Of course, tariff ought to be determined by the competitive dynamics and by what happens to the other players, but we would not hesitate to lead it as we have done in the recent past.”
After the July-September quarter results, he said, “We need to see one round of correction. When it will happen, I am not at liberty to say because it is not just up to us. If we do it and the competition does not follow then we have a problem. So, we are watching this space and we will see it when the time is right.”
Vittal had added that the current 8.5% return on capital was very low. “This money can just be put in a bond and you can still earn around that level of interest. So the fact is that this return on capital needs to go up and the only way that it will go up is if there is a tariff correction and we are not talking about massive corrections,” Vittal had said.