Bharti Airtel Ltd’s pilot project to raise base tariffs from ₹99 to ₹155 for prepaid customers in two circles of Haryana and Odisha will not only be a test for number 2 in telecommunications but for the industry as a whole, as its success could mean far greater levels of rate increases than seen in previous years, industry watchers have said.
Telcos could adopt a two-pronged approach where the bottom of their user base is pushed up to the ₹155 plan from the ₹99 plan, and the upper end of the prepaid tariffs are further increased by 10 at 20%, as planned on the lines of the last tariff increase in November 2021.
Analysts noted that pushing entry-level consumers to buy a higher-value pack will result in an immediate 57% hike in tariffs, adding that such a move would boost Airtel’s mobile revenue by around 2. 5 to 3%.
However, asking customers at the other end of the prepaid segment to pay more for existing plans would mean even higher average revenue per user (Arpu), a key indicator of telecom operator profitability.
“The increase in the base level of tariffs and the increase in general tariffs, as expected, will lead to a strong increase in the Ebitda levels of the telecommunications operators, which will benefit the financial health of the entire sector”, said Prashant Singhal, a global leader in emerging markets TMT at EY.
All other things being equal, a 5% increase in mobile ARPU can lead to an estimated 4% increase in FY24 EBITDA, Citi Research analysts said, pointing out that another series of tariff hikes, if executed successfully, could be a critical positive catalyst and driver. investor sentiment amid an expected increase in 5G CAPEX.
“This could also mean a positive for Vodafone Idea, which has been trying to raise funds for some time now. Investors could see rising Arpu as a sign of improvement of the company’s finances,” a sector specialist said on the condition of anonymity.
Airtel and Vodafone Idea, which sell prepaid recharge packs, have called for another round of tariff increases after the last game in 2021, reiterating the need for average revenue per user or Arpus to become sustainable to improve the financial health of the sector.
Telecom tariffs in India are among the lowest in the world, and both Airtel and Vodafone Idea have said that Arpus needed to rise to ₹200 and gradually to ₹300 over the coming years.
Analysts said consumer acceptance of the new plan, which offers unlimited data and calling as opposed to metered calls, messages and data usage in the ₹99 programs, will be critical to this shift in the industry, which in turn can prove to be a huge upside for struggling carrier Vodafone Idea if it follows suit with changes to its tariff base on similarly priced plans.
Market estimates suggest that nearly 100 million customers use the ₹99 recharge pack. Airtel and Vodafone Idea across all circles currently offers the pack. Airtel has discontinued the pack in two rings.
“Bharti’s calculated risk, if successful, will accelerate the risk of more competition/new entrants into the market. This should also significantly improve prospects for VIL,” said analysts at ICICI Securities, even as analysts at Morgan Stanley highlighted a key challenge of reducing the customer churn—or, in other words, arresting the loss of customers—which has risen to 4.3% in the September quarter from 3.5% in the previous quarter.