The telecom companies recently gave a shock to more than a billion mobile phone users in the country by rolling out a sharp hike in their tariffs. It looks like the recent hike has not given the desired results, and the telecom companies might soon increase their tariffs in the range of 25% to 30%.
The average Indian revenue per user (ARPU) is not something the telecom companies are happy about, and the overall telecom spending in the country is amongst the lowest around the globe. This has made the firms push for another round of tariff hike and could be announced by the end of this year.
Bharti Airtel and Vodafone Idea did not get any relief from the apex court on their AGR dues, and now they are staring at massive payouts. Therefore, they have to raise their tariffs to regain financial prowess. Rumours around Vodafone Idea collapsing have only added fuel to the fire and can see negative news in the days to come.
If Vodafone Idea fails to sustain, then Reliance Jio and Bharti Airtel will rule the Indian telecom industry in a duopoly structure. The data consumption has gone up since the inception of Jio. However, the revenues of the telecom firms have gone the other side. The government recently revived the state-owned BSNL with a package of Rs 69,000 crore.
Reliance Jio, Vodafone Idea, and Bharti Airtel recently increased their prepaid tariffs for the first in three years. The rise was in the range of 14% to 33%. This move is anticipated to increase the APRU to Rs 160 from the current Rs 120. The fate of Vodafone Idea is now relying on the government to offer some relief for its survival.
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The telecom firms are now predicted to take advantage of the decrease in consumer-level telecom spending. It fell to as low as 0.73% of the GDP in the quarter that ended in September 2019. It was about 1.25% in the year 2016. This situation is perfect for telecom companies to push for price hikes.
Despite the recent price hike, consumers are paying only 0.86% of the per capita income for their mobile needs. Spending on mobile needs in India is much lower than what it is in developed countries such as the United States, the United Kingdom, Australia, and Japan.
Given that people are now using data more than ever before, they would not mind paying a little extra for the same. The data consumption has gone up considerably since Jio entered the market in late 2016. Reliance Jio has completely changed the Indian telecom sector and is now having a market share of 32.04%, which is the highest among all telecom companies operating in India.
The timing of the price hike is now dependent on the survival of Vodafone Idea. It is in search of numerous ways to stay afloat in the market. The company is facing the AGR dues of a whopping Rs 53,039 crore as per the Supreme Court’s order dated 24 October 2019. Vodafone Idea is supposed to pay the dues by 23 January 2020.
The apex court dismissed the review petition filed by Vodafone Idea and has supported the definition of AGR by the government. Now, Vodafone Idea can file a curative petition. The company is currently holding a market share of 29.12% with 336.21 million subscribers across the country.
A hike in tariffs could mean that telecom companies losing users as nearly half of India’s residents earn an annual income of less than Rs 60,000. This population may feel the price hike a hard pill to swallow and may give up data consumption as a resort to cutting cost.
For any clarifications/feedback on the topic, please contact the writer at vineeth.nc@cleartax.in
Engineer by qualification, financial writer by choice. I am always open to learning new things.
