In Telecom Sector, we have witnessed tariff hikes in the recent past. Airtel, Jio, and Vodafone Idea are expected to benefit from the prepaid Tariff Hikes announced in November end. These tariff hikes will help Telcos to improve their Mobile segment Revenue and Average Revenue per User (ARPU). Hence, in this article, we will be doing the 5 point analysis of the telecom space, the impact of tariff hikes on business, and much more, so let’s get started.
1) Why did Telecom Companies opt for Tariff Hike:
- The last tariff hike was done 2 years back in 2019 and hence between these two years, there was some troublesome situation for the telecom companies where Jio was highly benefited by the Price war in terms of gaining new customers. While Airtel and Vodafone Idea (Vi) suffered a heavy backdrop.
- Now, the tariff hike was needed for survival as well as growth. Here, Vi was required to do a tariff hike for the survival purpose, while Airtel and Jio choose for tariff hike for the growth purpose.
- The possible reasons behind the decision of tariff hike are:
- Preparing for 5G Auctions
- Expand Network Coverage
- Improve Infrastructure
2) Tariff Hike Details:
- Here, we will be discussing the rate of tariff hikes taken by the telecom companies.
- Airtel has taken the tariff hike of 20%-25%, while Vi has taken the tariff hike up to 25%, and the tariff hike of Jio ranges between 20%-21%.
- These tariff hikes of Airtel, Vi, and Jio were effective from 26th November 2021, 25th November 2021, and 1st December 2022 respectively.
- These tariff hikes were done only in voice-only plans.
- For instance, with these tariff hikes, the basic voice-only plan of Airtel was changed from Rs. 79 to Rs. 99. Vi’s basic voice-only plan changed similar to Airtel from Rs. 79 to Rs. 99. Whereas, Jio’s basic voice-only plan hiked from Rs. 75 to Rs. 91.
- Despite such tariff hikes, Jio has the cheapest basic voice-only plans as compared to Airtel and Vi.
3) Impact of Tariff Hikes on Revenue:
- These tariff hikes could lead to the growth of around 2.5% QoQ for the consolidated revenue of Airtel. The revenue of Airtel was Rs. 28,326 Cr. in September 2021 quarter, now with possible growth of 2.5%, the revenue can be around Rs. 29,022 Cr. in the December 2021 quarter.
- Coming next to Jio, its revenue can increase by around 4.3% from Rs. 18,735 Cr. in Q2FY22 to Rs. 19,541 Cr. in Q3FY22.
- Lastly, Vi can report revenue growth of up to 2.6% on a sequential basis i.e., from Rs. 9,406 Cr. in September 2021 to Rs. 9,650 Cr. in December 2021.
- The full impact of the recent prepaid tariff hike on telcos Revenue is to be visible only in the Mar-22 quarter, since higher Tariff rates are reflected only for December month during the Dec-21 quarter.
4) Impact of Tariff Hikes on ARPU:
- With the help of the recent tariff hike, Airtel might record an ARPU of Rs. 164 in the December quarter of the Financial Year 2022. The ARPU of Airtel witnessed a notable downfall from Rs. 166 in December 2020 to Rs. 145 in March 2021, and is consistently improving since then.
- The expected ARPU of Jio could be Rs. 151 which might come to the range of December 2020 levels. Jio has also witnessed a downfall in its ARPU from Rs. 151 in December 2020 to Rs. 138 in March 2021, and has improved since then.
- ARPU of Vi was Rs. 121 in December 2020 which went down to Rs. 107 and Rs. 104 in March 2021 and June 2021 respectively, but has reported growth in September 2021 to Rs. 109, and with the help of this tariff hike, the ARPU of Vi could jump to Rs. 114 in December 2021 quarter.
- Yet again, the full impact of the recent prepaid tariff hike on telcos ARPUs to be visible only in the Mar-22 quarter, since higher Tariff rates are reflected only for December month during the Dec-21 quarter.
5) Expected New Subscribers Addition in Q3FY22:
- Currently, as of September 2021, Airtel, Vi, and Jio are having a subscriber base of 32.34 Cr., 25.3 Cr., and 42.95 Cr. users respectively.
- In the December 2021 quarter, Airtel and Vi are expected to lose around 50 lakhs customers each on account of 2 rounds of tariff hikes, while Jio is expected to add more than 55 lakh customers in Q3FY22. During the Q3FY22, Jio has also launched a new 4G Jio phone in Diwali 2021 which might have also helped Jio in gaining some customers.
What Should Shareholders Do?
This development in the telecom sector of India is an interesting thing to watch. Looking at the developments, it’s going to be a duopolistic market situation in the telecom sector in the coming years. Vi is losing steam every quarter at a much-accelerated pace and it will be watchful that how things will work for Vi post tariff hike as well.