- Tariff hike is on the cards as telecom operators in India are required to pay sizeable payouts to the government according to ICRA, a credit rating agency.
- Telecom operators are required to make sizable payouts to the government in the form of AGR dues, auction installments and regular revenue share.
- ICRA noted that tariff hikes and consistent upgrades of 2G subscribers to 4G have improved the ARPUs in the past.
Telecom companies like Airtel, Jio and others are likely heading for a potential tariff hike. Credit rating agency ICRA said that the hike in tariff is on the cards as telecom operators in India are required to make sizable payouts to the government. ICRA says that a sustainable and sizeable average revenue per user (ARPU) expansion is critical from the perspective of the telecom operators to meet their payout obligations.
The Supreme Court has granted 10 years to certain telecom operators to clear their AGR dues. The telecom operators are also required to pay auction installments and regular revenue share to the government. It is not clear, however, if the next round of tariff hikes will be applied to the telecom operators who face AGR dues or if it will be applied by all operators.
"While the industry still grapples with elevated debt levels and weak debt coverage metrics, the last fiscal has witnessed some respite in terms of steady ARPU improvement driven mainly by the tariff hikes implemented in December 2019, the deleveraging measures undertaken by the telcos, and moderation of capex intensity," Anupama Arora, vice president and sector head of Corporate Ratings at ICRA, said in a statement.
ICRA further noted that the postpaid segment has emerged as the battlefront in reference to Jio bringing in its new postpaid Plus plans in the market and Airtel expanding its basic Rs 399 plan. The firm noted that postpaid plans bring higher user stickiness as well as higher ARPU.
"It remains to be seen how this will impact competition as typically India is primarily a prepaid market while internationally, many countries are dominated by postpaid connection," ICRA noted. According to the firm, the tariff hikes and consistent upgrades of 2G subscribers to 4G have improved the ARPUs in the past.