Telecom operators could increase tariffs in the range of 20-25% during this year, opine analysts, after recent announcements by Airtel and Vodafone Idea to this end. Both companies, in their respective post-earnings call, had said that they are looking at tariff hikes during 2022 to boost their average revenues per user (ARPU).

During Airtel’s earnings call on earlier this week, the telco’s MD and CEO Gopal Vittal said that the company expects a tariff hike sometime in 2022. “I don't think it's going to happen in the next 3-4 months because the SIM consolidation and growth needs to come back but I do expect another round of tariff increase. Of course, it got to be determined by the competitors' dynamics.”

Vittal asserted that Airtel “would not hesitate to lead” on introducing tariff hikes “just as we have done in the recent past”.

Vodafone Idea CEO Ravinder Takkar had made a similar statement during the company’s earnings call in late January. Pointing out that the last tariff hike in November last year came after a gap of two years, Takkar stated that the telco will not wait for an equally long time for another price revision.

“This last one that took place was almost two years later, which I believe is a bit too long. So we certainly would expect less than two years. But in 2022, we will have to wait and see how quickly these prices get embedded, probably potentially tariff hike could be in 2023 as well,” Takkar said.

After a long-drawn tariff war following the advent of Reliance Jio and headwinds on account of legacy issues, the three players in the telecom sector – Bharti Airtel, Vodafone Idea and Reliance Jio – had increased their tariffs in November 2021. Airtel had hiked prices in the range of 18-25%, while Vodafone Idea revised its tariffs upwards by up to 25% across their plans.

Notably, Reliance Jio has not shared any plans to hike tariffs yet. The Mukesh Ambani-led telecom service provider had followed up and hiked tariffs up to 20% last year along with its competitors.

Tariff hikes plans are in line with operators’ aim to increase ARPUs for the sake of sustainability, analysts say. The hike would most likely be gradual and result in better services, they add.

“Indian telecom sector needs to improve its ARPU levels from the current $2 per user to $4 per user. This is possible only through tariff hikes or with subscribers upgrading from 2G to 4G network. Since India is more south than north in terms of tariff, we can see some northward tariff correction up to 20%,” says Prashant Singhal, leader, TMT-Emerging Markets at EY.

“Tariffs, and subsequently ARPUs, have gone up with the last hike. Even now, we have the cheapest telecom rates in the world, meaning there is enough room from a global perspective too. Hence, another hike of 20-25% in the next 12 months is imminent,” says Peeyush Vaish, partner and telecom sector leader, Deloitte India.

The last tariff hike saw ARPUs improving for all three telcos during the December quarter on sequential basis. Airtel reported its ARPU rising to ₹163 from ₹153 in September quarter. Vodafone Idea saw its ARPU rise to ₹115 from ₹109 a quarter ago. Reliance Jio registered an ARPU of ₹ 151.6, up from ₹143.6. While the figures show a rising trend, ARPU levels remain below the highly desired ₹200 mark.

“There have been no tariff wars in the telecom industry for the past one year, which is a sign of maturity on the part of operators, who have come to understand that they have to maintain a price threshold in order to ensure quality of service,” says Vaish.

The era of augmenting subscriber base is over and the focus has now shifted towards improving quality of service and offering more value for money, Vaish mentions. The fact that the watchdog Telecom Regulatory Authority of India has not intervened with the tariff hikes also bodes well, he further adds.

“Telecom users will obviously see an improvement in services with the rise in prices, in the form of better network, new services and innovation,” says Singhal.

With clarity on adjusted gross revenue (AGR) easing licensing procedures, telecoms are also in the position to form alliances for offering more value-added services, which might come to the fore in the next 6-8 months, says Vaish, adding that these developments will change the way we use our phones.

While absolutely necessary to ensure a sensible economic model, tariff hikes will be gradual, concur both analysts on an expected timeline for the future telecom prices revision.

“The telecom operators did a commendable job of keeping everyone connected during the pandemic, but that came at a huge cost. Now that they are planning to hike prices, they will make sure the lower base of subscribers is not impacted,” says Singhal.

The telcos’ hike tariffs plans came out as the government reiterated its commitment to introduce 5G services in the country. In her Budget speech on February 1, finance minister Nirmala Sitharaman had said that spectrum auction for the next-generation telecom network will be completed in 2022 so that the telecom operators are in a position to roll out services by 2022-23.

“We have the 5G auctions coming up. If the telecom industry can see some correction before that, then the auction will become more attractive,” points out Singhal.

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