Jio, Airtel, Voda Idea badly need to raise tariffs to survive; here’s how much more you should pay

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Published: July 3, 2020 11:31 AM

India has one of the lowest tariff rates in the world, but in the long-run, companies will be required to change that to not only have healthier balance sheets with strong free cash flow but also to be able to invest in better technologies.

Once the kings of the domestic telecom industry — Bharti Airtel and Vodafone-Idea — have only gone southward.

Indian telecom operators are not in a good shape and that is a truth long established. Right from Mukesh Ambani-owned Reliance Jio’s entry into the telecom sector, once the kings of the domestic telecom industry — Bharti Airtel and Vodafone-Idea — have only gone southward and this year has been no gentler to these firms with the AGR dues piling up. The bottomline? All telecom firms collectively need to charge you more if they are to survive. “Each player needs an ARPU hike — VIL needs to survive, RJio needs to justify its high valuations in the recent investments, and Bharti needs to deleverage,” Motilal Oswal said in a recent report.

However, to raise tariffs now, these otherwise rivals will need to come up together again just like they did last time in December 2019. “Near-term economic headwinds and history of the last ten years do not paint a pretty picture for the telecom industry… any tariff hike is possible only if there is collective effort on the part of all telcos,” the report added. 

India has one of the lowest tariff rates in the world, but in the long-run, companies will be required to change that to not only have healthier balance sheets with strong free cash flow but also to be able to invest in better technologies.

Coronavirus has impacted many businesses and luckily for telecom operators, their operations remained live and kicking. Nonetheless, the sector has weathered many changes such as lower recharges, consolidation of dual sim cards, and lower 4G off-take due to lack of physical counters/financial constraints. Other factors are also at play with a general consensus that GDP will shrink, disposable income will contract which will lead to lower consumer spendings. While telecom operators badly need a hike in average revenue per user (ARPU), due to the prevailing headwinds in the economy and coronavirus situation, they are likely to refrain from tariff hikes for at least a couple of quarters. To survive, Vodafone-Idea needs to hike tariffs by 50%, Reliance Jio may need to hike its ARPU by 40%, and according to Bharti Airtel’s management commentary, the firm needs to achieve ARPU of around Rs 200 in the near term and Rs 300 in the long term.

Further, telecom operators also need to redesign their price plans to provide consumption drive ARPU slabs for changing data needs and different requirements of different subscriber segments. 

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