Business Today

Why tariff hikes by Airtel, Vodafone Idea and Reliance Jio are here to stay?

Consumers might have to prepare for another shock as telecom regulator TRAI (Telecom Regulatory Authority of India) is planning to introduce a consultation paper on setting floor prices

twitter-logoManu Kaushik | December 4, 2019 | Updated 20:32 IST
Why tariff hikes by Airtel, Vodafone Idea and Reliance Jio are here to stay?

After staying low for almost three years, telecom operators are coming back with a vengeance. Since the beginning of December, all operators have decided to raise tariffs for voice and data services. The average tariff increase range between 15 and 41 per cent across different plans. The price hikes are more in plans with longer duration. Annual bundled plans have seen a jump of 41 per cent in comparison to 31-40 per cent rise for 84-day plans and about 25 per cent for 28-day plans.

The rise in tariffs is going to give a significant boost to the sector in terms of topline and bottomline. According to analysts, the sector will get a revenue boost of about Rs 53,000 crore as a result of tariff hikes while operating profits are expected to go up Rs 42,000 crore. This would be a huge respite for Airtel and Vodafone Idea which posted record losses of Rs 50,922 crore in the September - the highest in the corporate history.

So far, Vodafone Idea and Airtel have revised tariffs (effective December 3). Jio is yet to announce exact hikes, but has indicated it would be around 40 per cent for its 'all-in-one' packs. Not just the quantum of hikes is significant, but the way telcos have gone about designing the new tariff structure shows the hikes are here to stay. How?

First, both Airtel and Vodafone Idea have discontinued their most popular Rs 399 for 84 days (offering 1 GB per day) plan. In its place they have a 30 per cent more expensive plan at Rs 599 for 84 days (1.5 GB per day). This plan was earlier priced at Rs 459. This would enable them to move their existing customers to a higher value plan because otherwise they would have to opt for either 28-day plans or yearly plans.

Like Jio, both incumbents have also introduced limits on off-net calls. Off-net calls are those made from one telecom network to another - like an Airtel customer calling a Jio number. Airtel, for instance, has 1,000 minutes of off-net calls in the 28-day plans. The telco argues the cap is way above the current average usage of 700 minutes.

Consumers might have to prepare for another shock as telecom regulator TRAI (Telecom Regulatory Authority of India) is planning to introduce a consultation paper on setting floor prices. Telcos are going to keep a close watch on consumption patterns, and if heavy data consumption sustains post the latest hikes, it would give them confidence to have incremental increases as well. "Though the quantum of hike is still not enough for sustainability of Vodafone Idea, the trend reversal opens scope for another round of price hike," said Axis Capital in a December 2 report.

Analysts at Emkay said it expects incumbents to announce tariff changes in postpaid plans as well. Postpaid customers are less than 5 per cent of the 1.17-billion-subscriber wireless telecom market.

There are some risks to the new strategy as well. For instance, the hike could result in SIM consolidation which means users who were using two SIMs because of cheap tariffs would operate just one SIM after the hike. Globally, there are ample case studies of change in data consumption when prices are modified. The high elasticity of data in the current scenario would result in lower usage of data, and lesser revenues for telcos.

Also, there's a threat of downtrading - that is consumers moving towards lower value plans, especially in the lower end of the market. For instance, subscribers who buy voice-centric packs (priced at Rs 148 now) would likely shift to minimum recharge plans (Rs 49 or Rs 79) after the steep hikes.

"Vodafone Idea has retained Rs 379 (84 days, 6 GB data) and both [Airtel and Vodafone Idea] have retained the Rs 148 (28 days, 2 GB) - these are closer to price points of current headline plans and could drive downtrading," said financial services firm Jefferies in a report.

Telcos are reeling under the massive losses after the Rs 1.47-lakh crore AGR (adjusted gross revenues) blow from the Supreme Court in late October. The tariffs hikes, which have come after a wait of over three years, are expected to provide a big boost to their financial performance - more than even the rationalization of taxes and levies (as demanded by the telcos) and the two-year moratorium on the spectrum payments - a Rs 42,000 crore relief announced by the Cabinet Committee on Economic Affairs last month.

Also Read: Reliance Jio releases new All-in-One plans; prices begin at Rs 199

Also Read: Cabinet clears Personal Data Protection Bill; to be placed before Parliament

Also Read: Cabinet clears launch of Bharat Bond Exchange Traded Fund

Also Read: Anand Mahindra, Vijay Shekhar Sharma congratulate Google CEO Sundar Pichai for bigger role in Alphabet

  • Print

A    A   A