NEW DELHI: Consumers should now get ready to pay higher phone bills at frequent intervals with the telecom operators hiking tariffs by up to 25% in the past two days. While Reliance Jio hiked tariffs by 12-25% on Thursday, Bharti Airtel went for a 10-21% increase, followed by 10-23% by Vodafone Idea on Friday.
The days when there were longer gaps between tariffs revisions, sometimes over two years, seem to be over. Tariffs were last raised by the operators in November 2021 and before it in December 2019.
Analysts attribute this change in strategy to Reliance Jio now focusing on monetisation rather than gaining market share as its tariffs are the lowest amongst peers. This view gets strengthened from the fact Jio moved first to take a tariff hike. In 2019, tariff hike was led by Vodafone Idea and by Bharti Airtel in 2021.
“In 2019 and 2021, Jio followed Bharti in raising tariffs. Since then, Jio has consolidated its market leadership further, which may have led it to take the lead this time,” Jefferies said in its report on Friday. “Jio’s limited participation in the spectrum auctions this week suggests that its focus on network monetisation is rising and its initiative on raising tariffs suggests that it is more confident that its subscribers are unlikely to churn out. Rising focus on monetisation could also be a precursor to its imminent listing,” the brokerage firm noted.
Telecom industry executives explained that after the hikes, Bharti’s tariffs continue to be at premium to Jio’s, though the gap has narrowed a bit. Therefore, going ahead, Jio knows that if it raises tariffs, Bharti and Vodafone Idea would follow suit and a similar gap will continue to be maintained. “In this case, it does not need to fear any subscriber churn and can focus on monetisation. This is a good sign for the industry, where tariff hikes will happen at frequent intervals instead of long gaps,” an industry executive said.
Jio is at an advantageous position in terms of making the first move since its tariffs continue to be at discount to peers. Quite in contrast, there’s a risk if Bharti makes the first move since its tariffs are at a premium. If Jio does not follow suit, Bharti may be forced to roll back if there’s a subscriber churn due to higher gap.
“Unlike, Bharti and Vodafone Idea, who have been very vocal on the need for industry tariff repair, Jio has not been upfront about the need for industry-wide tariff hikes. However, the need for Jio to raise tariffs was equally (if not more) pressing, given 1) its larger 5G investments; and 2) further moderation in return on capital employed and free cash flow. Jio taking the lead on raising tariffs is a sentimental positive for the telecom industry,” Kotak Institutional Equities noted in its report.
Jio’s free cashflow turned negative `15,100 crore in FY24 due to a sharp rise in cash interest costs to `13,600 crore. Besides, the company’s network capex rose 60% y-o-y to `41,000 crore. The company’s return on capital employed (RoCE) deteriorated further to sub-6% levels due to higher investments and absence of 5G monetisation.
Industry executives said that the industry will not have any choice but to go for frequent hikes, as average revenue per user is now a bundled affair. “In 2019, a tariff hike led to a 95% Arpu enhancement. Now it will lead to a 65% upside. This is because now services come bundled with several OTT services, so the revenue needs to be shared with them,” industry executives said.
Brokerage firm CLSA expects a 6-13% increase in Arpus of Jio to `206 and `218, respectively, in FY25 and FY26, from `182. For Airtel, it has factored in an 11% y-o-y increase in FY25 Arpu to `228.
Morgan Stanley has estimated that blended Arpu would benefit in the range of 16-18% for Bharti and Reliance Jio.
Source: The Financial Express
