Setting the stage for a shake-up in the telecom sector, the country’s three top service providers Sunday announced tariff hikes for the first time in around five years. While Bharti Airtel and Vodafone Idea Limited announced rate hikes on pre-paid packages by up to 42 per cent beginning December 3, Reliance Jio said it is introducing “all-in-one” or AIO plans, which will see tariffs marked up to 40 per cent higher than previous plans and will be effective from December 6.
While the move may impact over 900 million customers served by the three carriers, analysts hailed the move and termed it as “the return of pragmatism and sensibility” within the industry. Competition within the sector had forced the carriers to operate on low tariffs that were putting their bottomlines under stress and had rendered the business model unsustainable.
Though Jio did not provide more details about its new plans, it claimed that it was “determined to strengthen the telecom sector” and that it will take measures, including “appropriate increase” in tariffs, in a manner “that does not adversely impact data consumption or growth in digital adoption” and sustains investments.
Airtel raised prices across its plans. For example its bundled pre-paid plans offering unlimited calling and data, that were earlier priced at Rs 249 (28 days validity) and Rs 448 (82 days validity), will now cost Rs 298 and Rs 598 (84 days validity) respectively. The telco has also increased minimum recharge from Rs 35 to Rs 49 for a month.
Expected hike was 10-20%
The hikes in tariffs would enable the telecom companies enough elbow room to get out of the financial mess that they are currently in. While the hikes are higher than the 10-20% expected by the market, these could help Vodafone Idea and Bharti Airtel significantly improve their bottomlines. Pre-paid packages of the two telcos cover almost 95% of their customers and around 75% of their revenues.
Vodafone Idea — the first off the block on Sunday — announced hikes in mobile calls and data charges from December 3, coming in the backdrop of its highest quarterly loss of Rs 50,922 crore amid an adverse Supreme Court ruling on adjusted gross revenue (AGR). The company has announced new plans for pre-paid products and services with validity of two days, 28 days, 84 days and 365 days.
Bharti Airtel’s new plans will cost up to 42 per cent more compared to the price that Airtel pre-paid customers pay at present for plans in the “unlimited” category. “Airtel’s new plans represent tariff increases in the range of a mere 50 paise per day to Rs 2.85 per day and offer generous data and calling benefits,” a statement by the company said.
Vodafone Idea said that local, STD and national roaming voice calls from Vodafone to Vodafone and Vodafone to Idea subscribers and vice-versa will be considered on-net, while rest calls would be off-net.
An analyst with a leading brokerage firm said the move should significantly improve the bottomlines of companies and is a big positive. “The fact that the three leading players have decided to go in for a hike will ensure that the tariffs remain on the higher side from existing levels,” he said.
The tariffs raised for pre-paid packages by Bharti Airtel and Vodafone would cover almost 95 per cent of their customers, contributing to around 75 per cent of their revenues. “Since the average tariff hike by these two players will come to around 25 per cent, Bharti Airtel and Vodafone should see a rise in their revenues by around Rs 7,000 crore and Rs 6,000 crore respectively. For Bharti Airtel, while the Ebitda (earnings before interest, tax depreciation and amortisation) will rise by over 20 per cent or around Rs 5,500 crore, for Vodafone it will almost double by around Rs 5,000 crore,” the analyst said.
On November 18, Vodafone and Bharti Airtel had announced that they would increase tariffs from December 1. The two had reported a combined loss of Rs 74,000 crore for the second quarter ended September 2019 on account of statutory dues arising from the Supreme Court order on AGR.
The apex court had upheld the government’s position on including revenue from non-telecommunication businesses in calculating the annual AGR of telecom companies, a share of which has to be paid as licence and spectrum fee to the exchequer.
The companies received some relief when the Cabinet on November 20 approved a recommendation of the Committee of Secretaries (CoS) to allow two-year moratorium to telecom companies on spectrum-related dues.
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