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Rising bond yields and a weakening rupee are inflating telecom firms' cost of borrowing and could force them to increase mobile tariffs, The Economic Times reported.
Large telecom operators often borrow funds from the market by issuing bonds of various maturities. If bond yields rise, they would need to pay more interest on the securities they issue.
Since a lot of these companies also borrow from overseas markets regularly, the weakening of the rupee will increase their cost of borrowing in those markets, thereby eroding the benefit they enjoy of raising money from abroad.
"The days of freebies for mobile consumers may be finally coming to an end as the high cost of money is definitely hurting telcos and putting pressure, particularly on the incumbents, which should lead to some tariff hikes in the next two quarters," Sanjiv Bhasin, Executive Vice-President, Markets and Corporate Affairs, IIFL, told the paper.
Industry experts also believe that mobile tariffs may go up in the next two quarters given that consumption is surging, the cost of diesel is rising and the rupee is weakening.
However, Rajan Mathews, Director General of the Cellular Operators Association of India, observed that fierce competition will likely force telcos to keep tariffs largely unchanged for the next two-to-three quarters.
Reliance Industries-controlled Reliance Jio Infocomm, which has kept tariffs largely unchanged since January, entered the market in September 2016 with competitive prices, pushing other telecom operators to drop rates, analysts told the paper.
While the move benefited subscribers, it weeded out smaller carriers and to consolidated the industry to three large private players -- Vodafone Idea, Bharti Airtel and Jio -- making it an ideal market situation for pricing power to return over time, they said.
Telecom operators may now have to redesign some of their less-popular bundled offers and induce customers to upgrade to higher-value deals for the same amount of data and free voice calls, Bhasin was quoted as saying.
He added that operators could also 'selectively ring in modest increases in monthly rentals of some bundled packs' to boost overall revenue.
Disclosure: Reliance Industries Ltd. is the sole beneficiary of Independent Media Trust which controls Network18 Media & Investments Ltd.
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