Phone bills for those on prepaid connections may increase, with Airtel kicking off a round of tariff increases. On Wednesday, July 28, Bharti Airtel announced that it had discontinued its entry-level Rs 49 recharge pack, with plans only starting at Rs 79 from now on. This, the company said, will offer more minutes of usage to customers as well as double the data.
However, this move was the first signal from telecom companies to increase tariffs, who have been in a staring contest about making the first move. The same has happened previously as well, with the other two companies usually following suit. As things currently stand, Jio’s entry level plan is also on a similar plane — at Rs 75.
After discontinuing its Rs 49 prepaid plan in four service areas over the last few days, Airtel discontinued the plan across India (all 22 service areas), meaning subscribers in this segment will now have to pay a minimum of Rs 79 for 28 days), or 61% higher vs earlier. “We see a high likelihood of Vodafone Idea following Bharti's actions over the next few days, and note that Jio's entry level plans are already broadly in line with that of Bharti's new pricing. We see this increase in tariffs by Bharti as a significant catalyst for the sector,” Goldman Sachs said in a note.
While companies do not divulge how many customers they have in particular price bands, Goldman Sachs said that Bharti Airtel has about 55 million customers on the Rs 49 plan. This could result in Rs 5 in incremental monthly average revenue per user, or ARPU, Goldman Sachs said.
As per the report, Vodafone Idea has discontinued its Rs 49 service plan in three services, which would mean that its entry plan will also become its Rs 79 plan if the lower-priced plan is discontinued across the country. “We see a high likelihood of Vodafone Idea discontinuing its Rs 49 plan at a pan-India level over the next few days,” Goldman Sachs said in its note, adding that it could lead to an increase of Rs 6 in incremental monthly ARPU.
Both Vodafone Idea and Airtel were expected to hike their tariffs, with the Supreme Court dismissing applications filed by telecom majors seeking rectification of the alleged errors in calculation of Adjusted Gross Revenue (AGR) related dues payable by them. The court, in September last year, had given a time period of 10 years to telecom service providers to pay Rs 93,520 crore in AGR related dues to clear their outstanding amount to the government. Since the AGR verdict in October 2019, there has been focus on telecom majors increasing their ARPU.
Bharti Airtel Chairman Sunil Mittal has been saying that the industry's tariffs need to go up amid "tremendous stress" in the telecom sector. "To say telecom industry is in a bit of trouble is actually an understatement. It is in a tremendous amount of stress. I hope the government, the authorities, and telecom department...all...focus on this issue and ensure India's digital dream remains intact through the provision of at least three operators," Mittal had said recently.
He further contended that market repair must take place. "We had ARPU of Rs 220-230 before Jio came in. Today, the industry is about Rs 130-ish...so significantly lower than where it was six years back and people are consuming 15 GB (data) a month (higher than before)."
At the end of the last quarter of FY21, Vodafone Idea’s ARPU stood at Rs 107, Airtel’s stood at Rs 145 and Jio, which recently announced results for Q1 of FY22, saw ARPU at Rs 138.2.
"So something has to give...it is unsustainable, where we are today," Mittal had said earlier this month.
The industry stress is perhaps most visible on cash-strapped Vodafone Idea, which last month approached the government for a one-year moratorium on payment of installment of over Rs 8,200 crore (due in April 2022).
In May, both Airtel and VI saw massive subscriber losses, while Jio gained. Airtel lost 46.13 lakh users, Vodafone Idea's user base fell by 42.8 lakh users, while Jio saw an addition of 35.54 lakh users, according to data released by the Telecom Regulatory Authority of India on Thursday, July 29.
In a note, Credit Suisse said that Airtel could benefit from a move to increase tariffs and might see an increase in ARPU, while Vodafone could bleed more subscribers due to such a move. “We believe that delay in tariff hikes or fund raise by Vodafone Idea could accelerate market share loss for VIL with Airtel being one of the beneficiaries,” it added.
Goldman Sachs added that it sees limited risk of subscriber churn for Airtel, and also said that Airtel discontinuing its Rs 49 plan suggests the company did not see any material subscriber churn in the four services areas it had discontinued this plan earlier. “However, we note that Jio is yet to reveal the pricing of its Google-partnered smartphone, and if the handset is priced closer to that of current feature phone handsets (sub-Rs 1,000), Jio could potentially win some incremental market share,” it said.
It added that it sees “little reason for Jio to not raise tariffs”. “We believe market share gains for Bharti and Jio will continue even after a tariff increase as Vodafone Idea's incremental cash flows will likely be channeled towards repayment of regulatory dues and not towards new capex," it said. Airtel and Vodafone Idea also both recently increased prices for retail and corporate customers.
With agency inputs