Updated: November 19, 2019 1:32:52 am
Vodafone Idea (VIL) and Bharti Airtel Monday announced they will increase tariff prices from December 1 — the first such hike in tariffs in India’s cut-throat telecom market since 2012. While the quantum of the hike in the mobile service rates was not announced, the move potentially sets the stage for a progressive upward revision of tariffs, which could have a positive impact on the bottomlines of India’s telecom players.
Analysts said this tariff hike within the industry, after almost seven years, may turn out to be a big positive. While VIL has 32 crore customers and an average revenue per user (ARPU) of around Rs 107, Pankaj Pandey, head of research at ICICIdirect.com, said, “Every Rs 1 increase in ARPU for VIL will increase its revenue and EBITDA by Rs 370 crore to Rs 380 crore.” With Airtel also following up with its hike announcement, analysts say that if this is the beginning of tariff hike cycle by telecom operators, it will help in revival of companies under stress.”
So, if VIL increases its tariff by 10 per cent, it may actually increase its revenue and EBITDA by around Rs 4,000 crore. Similarly, a hike in tariff by Airtel, whose ARPU currently stands at Rs 128, will add directly to its bottomline.
Announcing a hike in price offerings in the month beginning December, Airtel said, “While continuing to provide affordable tariffs to customers, it would balance the needs of the company to remain viable and, thereby, continue to invest in the much needed digital infrastructure and maintain the quality standards required by our customers.”
The upward revision in tariffs by VIL comes close on the heels of Finance Minister Nirmala Sitharaman stating that the Centre does not want any telecom company to shut operations. It also comes days after the telco reporting a consolidated loss of Rs 50,922 crore, the highest ever loss posted by any Indian corporate, for the quarter ended September 30 — almost entirely on account of liability arising out of the Supreme Court order in the adjusted gross revenue (AGR) case.
Meanwhile, the Cellular Operators Association of India (COAI), a lobby group for cellular operators, has pitched for the government granting telecom companies a three-year moratorium followed by an extended timeline for payment of all statutory dues at easier interest rates, as the telecom sector is reeling under losses after the SC ruling on AGR liabilities. On Monday, the VIL stock advanced nearly 25 per cent on the NSE over a possible government-backed rescue plan.
Pandey said that though it is not clear what the government will do to revive the sector, but “if they can go for a base level tariff for all players and provide some moratorium and leeway on spectrum payment, it would benefit the sector.” He further said that since a lot of government initiatives on Digital India ride on the telecom industry and numerous startups have their business model relying on them, “you need to have a proper backbone and a healthy sector with at least three big players.”
While the Centre has clearly indicated that it wants three players in the market other than BSNL and MTNL and is trying to revive the sector, experts tracking the industry feel that the current hike by VIL and Airtel would have come only after discussions with the government as they are holding meeting with officials on a regular basis. “It is therefore very unlikely that Reliance Jio will reduce the price when Vodafone Idea and Bharti Airtel increased their tariff,” said an expert closely tracking the industry.
In the past too, investors have burnt their fingers in the sector: Norway’s Telenor ASA, the UAE’s Emirates Telecommunications Group Co. PJSC and Russia’s Sistema PJSFC wrote off investments worth about $2.5 billion, after the Supreme Court cancelled licenses in 2012 following allegations of corruption in the spectrum allocation process.
The telecom industry, since then, has been struggling with combined losses of listed mobile firms topping Rs 1 lakh crore in the quarter ended September 2019.
Last week, Vodafone Idea and Bharti Airtel 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.
Stung by the losses, VIL had said its ability to continue as a “going concern” is dependent on obtaining relief from the government and positive outcome of the proposed legal remedy. The telco had also indicated that the process of filing a review petition against the Supreme Court order.
The Department of Telecommunications (DoT) had issued notices to telecom operators to pay their revenue share dues within three months, as directed by the Supreme Court, and had given an option to telecom operators to clear all the dues on self-assessment basis. The government had, last month, also constituted a committee of secretaries to explore a financial bailout package for the telecom sector.
📣 The Indian Express is now on Telegram. Click here to join our channel (@indianexpress) and stay updated with the latest headlines
- The Indian Express website has been rated GREEN for its credibility and trustworthiness by Newsguard, a global service that rates news sources for their journalistic standards.