Low tariff regime over, telcos up rates by 40-50 per cent
All the three private telecom players on Sunday announced pre-paid tariff plans with 40-50% higher rates.
While loss-making Vodafone Idea and Airtel face a Januaryend deadline to pay up thousands of crores in additional statutory dues, Jio on Sunday said it took the step “to help sustain” the telecom industry, which is burdened with over Rs 7 lakh crore of debt and the world’s lowest average revenue per user (ARPU).
Analysts said the increases would be the biggest in India’s telecom industry, with pricing of voice services back for most plans. The government nudged the three telcos to bite the bullet after a prolonged price war since 2016 damaged industry finances and heavily hurt revenues.
Vodafone Idea, which had over 311 million users in September, and Bharti Airtel (about 280 million subscribers), as per company data, also scaled down data offers or tweaked prices to force customers to spend more to continue getting the same benefits, the two operators said in separate statements on Sunday.
Both increased rates only for prepaid subscribers, who account for over 90% of their user base, starting December 3. Price increases by Jio, which caters to 355 million customers, will be effective from December 6.
Vodafone Idea said changes were “in line with our commitment to provide simple, convenient and affordable products.”
Airtel said its tariff increases range from 50 paise a day to Rs 2.85 per day. Airtel will continue to make large investments in emerging technologies and digital platforms, chief marketing officer Shashwat Sharma added.
Jio said its plans, which are yet to be unveiled, will be up to 40% higher, although it will provide up to 300% more benefits than its competitors. “While remaining committed to the ultimate interest of the consumer, Jio will take all necessary steps to help sustain the Indian telecommunications industry,” the Mukesh Ambani-owned telco said. “Jio will continue to work with the government on consultation for revision of telecom tariffs.”
Vodafone Idea and Airtel have also taken a leaf out of Jio’s books and rolled out a fair usage policy (FUP) to cap daily usage in unlimited calling plans. After a limit, customers will be charged 6 paise per minute for a call to other networks.
Jio said its new plans will continue to have FUPs and higher rates for calls to its rivals.
Analysts said the higher-than-expected tariff increases would lead to significant revenue gains and a re-rating of stocks. They would also help attract investments in Airtel and Vodafone Idea, which are looking to raise funds to pay over Rs 35,000 crore and over Rs 53,000 crore, respectively, in adjusted gross revenue (AGR)-based dues by January, as per a Supreme Court ruling.
“We were expecting a 30% hike in tariffs, but this has beaten all estimates… Vodafone Idea will also see a fresh bout of re-rating of bonds and stock) as ARPU will rise,” said Sanjiv Bhasin, executive vice-president, markets and corporate affairs, at brokerage IIFL. He expects Vodafone Idea’s ARPU to rise to Rs 143 from Rs 107, and Airtel’s to move to Rs 145-150 from Rs 128 over the next two quarters. He also expects “a positive impact on Bharti’s efforts to raise funds on back of tariff hikes.”
The Airtel board is scheduled to meet on December 4 to consider fundraising options. Another analyst, who asked not to be identified, said he expects Jio’s ARPU to increase to over Rs 140 by the fourth quarter of FY20. Jio’s ARPU was Rs 120, as of the September quarter.
“This is biggest tariff hike in the history of the telecom sector, with an average of 30-35% raise and in some cases, upwards of 45%. Voice pricing is completely back and termination may not go down to zero immediately as operators are using fair usage policy and off-net calls to charge for voice,” said Rajiv Sharma, head of research at SBICap Securities.
He said in six to nine months, telcos may start charging for calls made within their networks and because of this, the dual-SIM phenomenon may come back.
“Reliance Jio, in some price plans, will be at a par with competitors and 5-10% cheaper in others. However, it will not go as much as offering tariffs 20% less than Airtel and Vodafone Idea,” Sharma said.
While Vodafone Idea and Airtel had been making losses for a while and had been saying that rates were unsustainable, the trigger for the price increase appears to have been the October 24 Supreme Court order on AGR, which left them facing over Rs 89,000 crore in dues and forced them to make provisions for the payments in the September quarter.
The government recently gave telcos some relief, with a two-year moratorium on spectrum payments.
However, the two companies said price increases would be the real game-changer for restoring health of the sector.
Both telcos have revised their basic price plans of Rs 35, which gave customers 100 MB of data for 28 days, to Rs 49, a 40% jump. Those who want 200 MB for about a month will now have to pay Rs 79 instead of Rs 65, a 21% increase.
They have also made changes for their high ARPU customers in a bid to push them to the stickier post-paid segment, which have similar prices but more benefits.
VIL has upped the tariffs by 50% for some of its most popular plans. The Rs 399 plan that gave subscribers 1GB per day for 84 days has been replaced with one costing Rs 599 and offering 1.5 GB a day for a similar period.
Airtel’s subscribers who want to get 1.5 GB and 2 GB data a day for almost three months will see their expenses up by Rs 1.66 a day and Rs 2.22 a day, respectively.