Telcos ready to bite the bullet: Airtel, Voda Idea to hike tariffs from Dec

Topics Telecom | Voda idea | Bharti Airtel

Telcos, which are awaiting a potential remedy from the government, have in the past got feelers from the government that they must raise tariffs to cut their losses
Incumbent telecom operators Vodafone Idea and Bharti Airtel, bruised by fierce competition to keep prices low, will hike tariffs starting December 1, the companies said in a surprise announcement on Monday. The first telecom tariff hike in several years follows record second-quarter losses reported by the two operators.

The telcos, however, did not provide any guidance on the amount of the hike or the subscriber segments to be impacted by the move. Analysts see the hikes as a positive for the sector, which has only witnessed tariff cuts since the launch of Reliance Jio in September 2016. 

The decision of Vodafone Idea and Airtel to raise tariffs is being seen as a step to encourage the government to offer a relief package to the industry, saddled with mounting losses and piling debt. Telcos, which are awaiting a potential remedy from the government, have in the past got feelers from the government that they must raise tariffs to cut their losses. 

With the incumbent telcos taking the first step to hike tariffs, the government is expected to offer relief in terms of lowering the licence fee, a moratorium in paying spectrum charges, and perhaps a staggered payout of adjusted gross revenue (AGR) dues, sources in the know said.

The Telecom Regulatory Authority of India (Trai) too has been weighing the option of introducing a floor price for tariffs in the backdrop of rock bottom prices prompted by competition, according to reports. But a Trai official said recently that the regulator had not got any reference from the Department of Telecom (DoT) on that.  

“To ensure its customers continue to enjoy world-class digital experiences, Vodafone Idea will suitably increase the prices of its tariffs effective December 1, 2019,” said the company’s statement on Monday. It added that Vodafone Idea will continue to actively invest in making its network future-fit by embedding new-age technologies and launching new products/services to cater to the evolving needs of its over 300 million customers. 

“The telecom sector is highly capital intensive with fast-changing technology cycles that require continuing investments.  It is, therefore, extremely important that the industry remains viable to support the vision of Digital India,” said Bharti Airtel in a statement soon after. 

Mobile data charges in India are by far the cheapest in the world, even as the demand has grown. From October 10 onwards, Reliance Jio started charging customers 6 paise a minute for making calls to any non-Jio mobile number. Till then, it was for free. 

This initiative came at a time when Jio already commands a bulk of the market share. The additional charge was introduced soon after Trai moved to reopen the deadline for ending charges for terminating calls on rival networks beyond January 2020. 

Vodafone Idea’s subscriber base slipped by another 9 million, at a reduced churn rate, during Q2 to 311.1 million (Q2 of 2018-19: 422 million). Average revenue per user (ARPU) was at Rs 107, compared to Rs 108 in the first quarter (Q1). Although the company reported better retention of 4G customers, it has fallen behind rivals Jio and Airtel in expanding the 4G base. The operator has lost almost 110 million subscribers since October 2018, when it introduced minimum recharge plans to weed out low ARPU subscribers. 

“Muted 4G subscriber additions remain a key concern for Vodafone Idea. Without any meaningful government support, Vodafone Idea’s survival appears to be at risk, which may result in the Indian telecom market moving to a duopoly (private operators), and opens up possibilities for Airtel subscriber additions to improve and even tariffs,” noted Rajiv Sharma, co-head of research, SBICAP Securities. 

During Q2, Vodafone Idea added 5.5 million 4G customers (Q1 of 2019-20, it was 4.1 million), taking the overall 4G subscriber base to 90.3 million with increasing 4G net adds. Even data usage volumes, while improving, are still behind Airtel and Jio.

The acute financial stress in the telecom sector has been acknowledged by all stakeholders and a high level Committee of Secretaries headed by the Cabinet secretary is looking into providing appropriate relief. The total AGR dues that the telecom companies will have to pay to the government, as directed by the Supreme Court recently, are estimated at Rs 1.33 trillion.

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