Airtel, Jio to see 16-18% ARPU benefit from tariff hikes, Vodafone Idea may gain most: Analysts

Airtel has the highest ARPU in the market at Rs 209, followed by Jio's at Rs 181.7 and Vodafone Idea's at Rs 146 at the end of the  fourth quarter of last fiscal.

Reliance Jio on June 27 announced a tariff hike and Bharti Airtel followed its bigger rival with an 11-21 percent rise on June 28. Vodafone Idea is also expected to soon announce a revision in its tariffs for both prepaid and postpaid customers in line with its bigger rivals.

Jio has announced an increase in tariffs across segments, excluding feature phones, starting from base-level prepaid monthly packs to annual packs in the range of 13-25 percent, while the hike in postpaid plans is in the 13-17 percent range.

Additionally, the minimum monthly plan required to avail unlimited
5G data has also been raised from Rs 239 to Rs 349.

As per an analysis done by Nomura, Jio has raised its key lower-end monthly plans at a higher rate of 19-25 percent, compared to higher-end monthly plans of 13-17 percent, which is a positive initiative to drive higher ARPUs, given the existing subscriber mix.

The erstwhile entry-level prepaid plan of Rs 155 has been increased by 22 percent to Rs 189 now and the Rs 239 plan has been increased by 25 percent to Rs 299. Postpaid plans increased by 17 percent and 13 percent to Rs 349 and Rs 449 after no hikes in the previous two rounds. The entry-level postpaid plans are now at Rs 349.

JP Morgan said that a 5G tariff hike will help Jio more given higher 5G coverage and availability at three times of Bharti Airtel.

Analysts at BofA Securities said this round of tariff hikes would lead to improvement in the telecom sector cash flows and return ratios for all companies. “Vodafone Idea will be the biggest beneficiary of the tariff hike, as it is a pure-play mobile operator, followed by Bharti Airtel and then RIL,” they wrote.

Based on the tariff hikes, analysts now see an 18-25 percent CAGR in EBITDA for FY24-26 for Bharti Airtel and Jio, along with a 500bps ROIC
improvement.

Analysts said that with tariff hikes, Jio has taken the first step towards 5G monetisation by raising the threshold for 5G data availability.

Jefferies said Jio's limited participation in the spectrum auctions suggests that its focus on network monetisation is rising and its initiative on raising tariffs suggests that it is more confident that its subscribers are unlikely to churn out. "Rising focus on monetisation could also be a precursor to its imminent listing."

Jio's 5G was earlier offered as ‘free and unlimited’ across all data plans when the user had a compatible handset. This has now shifted to users having to subscribe to plans, which are 2GB per day and above only.

JP Morgan and BNP Paribas said that this effectively drives a 46 percent increase in tariff for Jio's 5G users.

This round of tariff hikes will lead to SIM consolidation but analysts said that the magnitude of the impact may be lower this time around compared to previous rounds of tariff increase.

"Historically, we have seen some SIM consolidation and negative elasticity impact after tariff hikes. While anticipating a similar negative impact this time as well, we think the magnitude of the impact may be lower this time around. This is because the larger part of SIM consolidation is already behind us and data is getting sticky such that consumers may not downgrade as much," BoFA Securities said.

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