Why more tariff hikes make sense for Indian telcos

Telcos in India are likely to announce another round of tariff hikes, according to media reports. The last increase in December 2021 came after two years, but this time telcos are likely to go for a rate increase much sooner.

All three private telcos – Bharti Airtel, Vodafone Idea and Reliance Jio – hiked prepaid tariffs by 20% to 25% in November and December last year.

Telcos are likely to announce another round of tariff hikes for several reasons. To start, the last tariff increase is helping the telcos increase average revenue per user (ARPU) and the quality of subscribers. Also, unlike in the past, the tariff hike has not sparked any strong reaction from subscribers.

Telcos in India need funds for the upcoming 5G spectrum auction.
 (Source: Nicolas DEBRAY from Pixabay)
Telcos in India need funds for the upcoming 5G spectrum auction.
(Source: Nicolas DEBRAY from Pixabay)

For Vodafone Idea, the tariff hike resulted in an increase in ARPU from INR115 (US$1.40) in the quarter ending December 2021 to INR124 ($1.60) in the March 2022 quarter. While there was a decline in the number of subscribers, the impact has been minimal since they were already inactive users and data traffic grew.

"The subscriber base declined to 243.8 million vs 247.2 million in Q3FY22, primarily due to tariff increase," Vodafone Idea stated in a press release. "However, the 4G subscriber base continued to grow and with 1.0 million customers added in Q4, 4G base now stands at 118.1 million."

The company added, "Subscriber churn was flat QoQ at 3.4%. We continue to see the increase in the data usage per 4G customer which now stands at ~13.9 GB/month vs ~12.9 GB/month a year ago. The total data traffic thus witnessed a healthy growth of 7.9% YoY."

Reliance Jio's ARPU increased to INR167.6 ($2.16) in the quarter ending March 2021. While Airtel has yet to announce Q4 results, the company has said in the past that it wants to see ARPU go up to INR200 ($2.50) per user per month. Airtel had the highest ARPU of INR163 ($2.10) at the end of the December quarter.

Funds for 5G spectrum auction

The telcos need these funds for the 5G spectrum auction. The telecom regulator recommended a drop in base price that was not in line with the telcos' demand for a 95% reduction in the original base price. While the telcos would like to charge a premium for 5G, the lack of a killer use case for the end user means that they are not in a position to do so.

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Further, the experience of 3G might prevent them from charging a premium for 5G. After paying exorbitantly for 3G spectrum, the telcos tried charging a premium for 3G services, but the move backfired, with the market picking up only after they dropped the tariff.

This could mean that there will be few takers for 5G if there is a massive difference between 4G and 5G rates. Smart operators are likely to hike 4G rates before the launch of 5G services, so that there is not an unreasonable difference between 4G and 5G rates.

All in all, a tariff hike is a win-win proposition for telcos.

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— Gagandeep Kaur, contributing editor, special to Light Reading

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