Telecom tariff hikes likely as industry needs higher ARPU: Analysts

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A tariff hike can be expected in the telecom sector soon as payment obligations by operators necessitate the need for average revenue per user (ARPU) expansion, analysts say.

The Supreme Court had in October 2019 mandated that telecom operators pay Rs 1,19,292 crore to the Department of Telecommunications as adjusted gross revenue (AGR) dues. Of this, Bharti Airtel’s dues are pegged at Rs 43,980 crore, while Vodafone Idea’s dues were Rs 58,254 crore.

The 3 telcos namely -- Airtel, Reliance and Vodafone -- had however witnessed growth in ARPU in the third quarter ended December 2020 to Rs 166, Rs. 151 and Rs 121 respectively.

Ankit Jain, Assistant Vice President, ICRA Ltd. said: "Last few quarters have witnessed ARPU improvement, initially on the back of tariff hikes implemented in December 2019, followed by factors like healthy conversion of subscribers from 2G to 4G and consistent increase in usage of telecom services which result in tariff plan upgrades."

However, elevated debt levels and high obligations (DoT payables in the form of spectrum auction instalments starting FY2023, AGR dues and quarterly revenue share) necessitate substantial ARPU expansion. Moreover, the fact that India has one of the lowest tariffs in the world indicates enough room for increasing the same. Thus, tariff hikes are expected in the near term, which would drive the ARPU levels to around Rs 220 in the medium term, Jain added.

The telecom companies in India last announced a tariff hike in December 2019 in the prepaid category.

A report by ICICI securities in December 2020 had said that a telecom tariff hike can be expected as early as March 2021.

"The industry has seen a healthy rise in ARPU over the last couple of years owing to tariff hikes and accelerated customer upgradation to 4G. Another much-anticipated round of tariff hikes was expected in H1 FY21, which was delayed due to the onset of the pandemic. As the economy limps back to normalcy, a further round of tariff hikes is expected which will be necessitated by the removal of IUC charges as well as first AGR instalment payout of Rs 130 billion due in March 2022," said Isha Chaudhary, Director, CRISIL Limited.

"Further, the players would require stronger cash flows to undertake capital expenditure on spectrum and network upgradation over next two fiscals for the launch of 5G. In the longer run, CRISIL Research believes that the industry would need an ARPU of Rs.180-200 to be able to meet their regulatory payment obligations in FY23 when the moratorium on deferred payment ends, which will prompt telcos to time the hikes much before that," she noted.

Bharti Airtel's ARPU stood at Rs 162 in the September quarter whereas that of Reliance Jio's and Vodafone Idea's stood at Rs. 145 and Rs. 119 respectively.

Further, the debt-laden telcos Vodafone and Airtel also witnessed substantial increase in its 4G subscriber base. Vodafone added 3.6 million 4G subscribers whereas Airtel added 1.29 crore 4G subscribers in the October-December quarter.

Prashant Singhal, EY Emerging Markets Technology, Media & Entertainment and Telecommunications Sector Leader, said:

"Data traffic has grown by nearly 40 percent in 2020, driven by a strong uptick in consumption due to distributed workforce and more-digital lifestyle. India consumes as high as 10,000 petabytes per month on mobile alone.  The trend is going to spiral with an uptick in digital adoption. India, however, has one of the lowest telecoms tariffs at $0.09/GB against the global average of $5.1/GB".

With continued data growth, 5G investments and 4G auctions round, operators need to make significant investments to meet the burgeoning demand of a Digital India. This necessitates an increase in ARPU through an upward revision of tariffs or increase in 4G adoption, Singhal added.