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Wednesday, December 08, 2021

Explained: Why has Bharti Airtel hiked tariffs, and who will be impacted?

Bharti Airtel has hiked tariffs of its prepaid plans by up to 25 per cent, a move that could be followed by the two other private telecom service providers. What is the reason for its decision, and what impact will this have?

Written by Aashish Aryan , Edited by Explained Desk | New Delhi |
Updated: December 3, 2021 9:18:49 am
A man packs goods on the back of his bicycle as he stands next to the wall of a grocery shop painted with an advertisement for Bharti Airtel in Kerala. (Reuters Photo/File)

Signaling the end of low tariff regime in the telecom sector, Bharti Airtel on Monday announced it would hike the tariffs of its prepaid plans by up to 25 per cent. The move is likely to be followed by the two other private telecom service providers.

Why has Bharti Airtel decided to hike its tariff across prepaid plans?

Ever since the entry of Mukesh Ambani-backed Reliance Jio Infocomm, the telcos have been undercutting each other by slashing call as well as data usage rates. The competition has been so intense for the past five years that some telcos shut shop while others, such as Vodafone and Idea, decided to join hands in a bit to survive the onslaught brought on by the deep pockets of Reliance Jio.

The situation was so dire that telcos sought government intervention in some form to ensure there was a floor for tariffs. While the government did not intervene in any form, telcos themselves decided to collectively raise their tariffs, one after another, in December 2019.

Among the telcos, Bharti Airtel has been vocal about the need to take average revenue per user (ARPU) level back to Rs 300, as against the Rs 100-150 mark that it is oscillating in currently. In a statement, the telco said the tariff hike would allow it to mark the start of returning to Rs 200 ARPU, and that it would “enable the substantial investments required in networks and spectrum”.

Why is Bharti Airtel raising the tariff important for the industry?

Of the three private telecom players, two, namely Vi and Bharti Airtel, are burdened with a Supreme Court judgment which asks them to pay more than Rs 58,250 crore and Rs 43,890, respectively, as adjusted gross revenue (AGR) dues. Though both the companies have opted for the four year moratorium on spectrum and AGR dues, they will have to come up with the funds for the payment once the moratorium ends.

Monday’s tariff hike by Bharti Airtel, analysts said, “is a much-needed step towards healing the profitability and the returns profile of the sector”.

“The tariff hike announced by a major telecom operator is a much-needed step towards healing the profitability and the returns profile of the sector. It will also enable telcos to invest in rolling out 5G mobile services over the medium term,” ratings agency Crisil Ratings said in a report.

India Ratings also believes this provides an opportunity to the other two players in the industry to hike tariffs, since Monday’s announcement by Bharti Airtel is likely to impact around 95 per cent of its total user base.

“The tariff hike announced by Bharti Airtel is one of the sharpest and most broad-based (spanning across various tariff plans) witnessed in the recent past and is applicable to prepaid customers, who comprise about 95 per cent of Bharti Airtel’s total subscriber base,” India Ratings said.

Who will the tariff hikes impact the most?

Since Bharti Airtel has decided to hike by up to 25 per cent the tariffs in the entry level segments, analysts feel that there could be a consolidation in this segment of users of the company in the days to come. The company had, in July this year, announced a modest tariff hike in corporate and entry-level prepaid plan.

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