Business

Signaling the end of low tariff regime in the telecom sector Bharti Airtel hikes prepaid tariff followed by Vodafone Idea

As per rating agency, this revision in tariffs will enable telecom companies to invest in 5G mobile services over the medium-term

PGurus Newsdesk

November 23, 2021

Bharti Airtel and Vodafone Idea announced on Monday that it was raising prepaid tariffs by up to 25% with effect from November 26.

Bharti Airtel to hike prepaid tariffs by 25%

Bharti Airtel announced on Monday that it was raising prepaid tariffs by up to 25% with effect from November 26. Bharti said that the move had been necessitated by the need to increase mobile revenues to safeguard the business’s financial health.

Reacting to the price hike, CRISIL Ratings said “The hike in prepaid tariff by telecom operator Bharti Airtel was a much-needed step towards healing the profitability and the returns profile of the telecom sector.”

As per the rating agency, this revision in tariffs will enable telecom companies to invest in 5G mobile services over the medium term.

Following Airtel, Vodafone Idea to hike tariffs by up to 25%

Soon after Bharti Airtel announced a price hike in its prepaid tariffs, Vodafone Idea surges its tariffs by up to 25%.

From November 25, the telco’s price of its entry-level plan will be 25% more expensive while 11 other mobile phone plans and four data packages will be around or over 20% higher, said Vodafone Idea in a statement.

“Telecom is a capital-intensive sector because it requires continuous technological upgradation. The key players had already invested Rs.5 lakh crore between fiscals 2017 and 2021 to roll out 4G services. Telcos would need to invest at least Rs.70,000 crore at the 5G spectrum auction likely to be held next fiscal if the bidding is prudent,” the rating agency said.

“Given the high operating leverage of the sector, the current tariff hike will lift the sector’s EBITDA by 40 percent to more than Rs.1 lakh crore in fiscal 2023 as compared to fiscal 2021. The last industry-wide tariff hike in December 2019 had raised the sector’s ARPU by 15 percent and improved its EBITDA by 35 percent to Rs.72,000 crore in fiscal 2021,” it said.

Assuming other telcos follow suit on tariff hike coupled with the rising data consumption, the current hike should increase the sector’s ARPU by 15-20 percent to Rs.155-160 next fiscal from Rs.135 last fiscal, and the return on capital to 7 percent, it added.

Indian telecom operators, the rating agency claimed, have among the lowest ‘average revenue per user’ (ARPU) per month in the world and subdued return on capital investment, despite having second-highest average data traffic per user.

Terming it one among the sharpest tariff increases in the past, analysts said other telecom companies including Reliance Jio were likely to follow suit as was the case in the previous industry-wise tariff hike cycle in December 2019.

[With Inputs from IANS]

PGurus is now on Telegram. Click here to join our channel and stay updated with all the latest news and views

For all the latest updates, download PGurus App.