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Can Tariff Hike Save Telecom Companies?

Starting today, private telecom companies Bharti AirTel and Vodafone IDEA are raising tariff on mobile calls and internet rates. So, what’s new about call and browsing costs going up in a country where commodity prices disprove Newton’s law of gravitation! When everything else was getting pricier in the country, only telecom costs remained stagnant since 2014 – yes, a full five years.

Close on the heels of these price hikes, Reliance JIO, which entered the highly competitive market in 2016 has also announced a price hike of up to 40% by the end of this week. So, be ready to pay more for that never-ending call with your friend. However, jokes apart this hike the need of the hour many years ago and now one needs to fathom whether it will provide the financial relief that telecom players need.

Quantum of Hikes

The tariff hike announced by Vodafone Idea and Bharti Airtel – as high as 50% of the current rates – has been far higher than analysts had estimated. However, it is likely to help Airtel India’s mobile business to sway its profits at the pre-tax level after several quarters of losses. In Vodafone Idea’s case too, losses will reduce to a great extent. But given its losses, the telco would need to do much more to retain the gains from the tariff hike, believe analysts.

In separate official statements, Bharti Airtel and Vodafone Idea have shared new rates in the ‘unlimited’ category that will replace their existing pre-paid plans with up to 50% higher cost. Reliance Jio said it is rolling out new all-in-one plans with unlimited voice and data at up to 40% higher price from December 6.

Vodafone Idea was the first to announce “new tariffs/plans for its prepaid products and services. New plans will be available across India starting 00:00 hours of December 3, 2019”. Vodafone Idea announced maximum increase of 50% in its entry level unlimited plan with a year-long validity of Rs 1,499 with 24 GB data usage limit in place of Rs 999 plan, which comes with 12 GB data usage limit.

Bharti Airtel also announced a similar level of change but kept the prices of most new plans lower by one rupee compared to that of Vodafone Idea. Shashwat Sharma, Chief Marketing Officer, Bharti Airtel said, “Our new mobile plans offer tremendous value to our customers and are backed by a superior network experience on Airtel’s nationwide 4G network. Airtel will continue to make large investments in emerging technologies and digital platforms to deliver world-class experiences to our customers.”

Meanwhile, Reliance JIO announced plans to raise mobile services rates from December 6 onwards. “While remaining committed to the ultimate interest of the consumer, JIO will take all necessary steps to help sustain the Indian telecommunications industry. We will continue to work with the Government on the consultation process for revision of telecom tariffs and looks forward to participation from all other stakeholders,” the company said in a statement.

Read more: Is JIO Set to Monopolize India’s Telecom Sector?

The Clear Winner

In the current rising tariffs scenario too, perhaps the biggest gainer would be Reliance Infocomm. JIO is in a much better position to sustain the pace of its market share gains than its rivals. For example, while both Airtel and Vodafone Idea have not touched postpaid tariffs (the postpaid segment accounts for about 30% of revenues for the telco duo), JIO hardly has any postpaid subscribers on its network.

Also, the tariffs mostly included hikes in voice-only plans, again, a segment where JIO is currently almost absent (but has ample rooms to explore in the future).

JIO has even stated in its official statement that it will provide its customers “300% higher benefits compared to its competition.”  JIO’s revenue market share has risen from 11.4% two years ago to 34.4% in the September 2019 quarter. While Airtel’s market share was more or less the same at about 31%, Vodafone Idea’s market share has fallen from 36% to 27%, according to a BloombergQuint report.

Read more: BSNL-MTNL Revival Plan – Does It Really Matter?

The Justification

Since Jio’s entry in September 2016, every other telco in the country were compelled to cut down on their tariff. This has led to a significant impact on the financials of incumbent operators like Bharti Airtel and Vodafone Idea.

Last month, the incumbent telcos got a big blow when the Supreme Court ruled in favor of the Department of Telecommunications (DoT) a decade-old AGR (adjusted gross revenues) dispute. The telcos already reported record losses in the July-September quarter, with Vodafone Idea reported over net losses to Rs 50,921.9 crore, the highest in the corporate history of India. Airtel too reported net losses of Rs 22,830.1 crore in the same quarter. This left the already-strained telcos with no other option but to increase tariffs.

Justifying the tariff hikes, an Airtel spokesperson said that the tariff hikes are in the range of a mere 50 paise per day to Rs 2.85 per day, which is not going to impact end consumers in a big way.

As specified earlier, the impact of the recent hikes will be felt by prepaid consumers, whereas postpaid consumers will continue to pay the same tariffs as before. As per TRAI, over 95% of the wireless market comprises prepaid users who, on an average, pay about Rs 66 per month to telcos. In comparison, postpaid users pay Rs 253 per month.

Experts are predicting more hikes in the future as the quantum of price hike is still not enough for sustainability, especially for players like Vodafone Idea.

COAI Director-General Rajan Mathews, believes that the price hike is going to benefit customers, government and the industry. “From customers’ perspective, these tariffs will enable operators to do required and necessary improvements in the telecom network which has been languishing because of financial stress in the sector. In the upcoming short period, we should begin to see improvement in customer experience and services,” he said in a report quoted by wired agency PTI.

According to official data, the telecom sector’s gross revenue fell about Rs 41,000 crore in three years on account of a dip in mobile services rates. But the latest moves in the area of price hikes are likely to bring some relief to these incumbent telcos in the coming months.

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