Tariff hike in the telecom sector is "inevitable" as the current structure does not allow reasonable returns for operators, although a lot would depend on the timing given the "unprecedented" scale of the COVID-19 pandemic and resultant affordability crisis, according to EY.
Acknowledging that an immediate tariff increase may not be feasible in the current setting, Prashant Singhal, emerging markets Technology, Media & Entertainment and Telecommunications (TMT) Leader at EY said two rounds of tariff hikes can be expected in the next 12-18 months, including one in the next six months.
"Tariff hike is necessary. Telecom as spend for consumers is fairly low, and tariff hikes should likely happen over next 6 months, I am not saying it must, but sooner the better...
"One has to keep in mind the economic situation and affordability factor, but over 12-18 months, you have to have two rounds of tariff hikes, including one in the next six months, to ensure sustainability in the market," Singhal told PTI.
Whether such a hike comes through regulatory intervention or industry action remains to be seen, but the financial health of the operators necessitates revision in tariffs, he said.
"Fundamentally, if the sector has to do well, what you require is fair price for service which is being offered by companies.
"There has been one revision of tariffs in December, and if one or two rounds of upward revision happen to make it at least at par with other emerging markets, in a way that consumers don't feel the pinch, that is where the revival of the sector will happen," Singhal said.
The industry is talking of Average Revenue Per User (ARPUs) going up anywhere from 60 per cent to 80 per cent over next two-three years, and that can happen by way of tariff increase, and moving away from fixed price plans to data based on usage or consumption.
Tariff hike is inevitable, and the issue is one of timing, he asserted.
"If we did not have the pandemic, we may have seen a hike in June itself. Now because of the pandemic, which is unprecedented and extraordinary, we may see a tariff hike in next six months but it is inevitable, as current structures don't allow companies to have reasonable return on capital employed," Singhal added.
Admitting that now may not be a suitable time for initiating tariff increases, given the "affordability crisis", Singhal said that things are speeding-up and several measures have been taken by the government to ensure that the economy is back on track.
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