AGR: Indian consumers likely to pay more for voice and data services

Indian consumers may soon have to pay more for voice and data services as telecom operators like Bharti Airtel and Vodafone Idea will accelerate their plan to hike tariffs after the Supreme Court’s judgement on adjusted gross revenue (AGR) liabilities.

The Court has ordered telcos like Airtel and Vodafone Idea to pay 10% of AGR liabilities by March 31, 2021 and pay the remaining amount in 10 installments starting March 31, 2022. Telecom operators had proposed a 15-20 years timeframe to clear outstanding dues.

All three telecom operators — Airtel, Vodafone Idea and Reliance Jio — had already increased tariffs by up to 40% in December 2019. The tariff hike, which was the first such hike in four years, resulted in a 20% increase in earnings in the first half of 2020 for Airtel and Jio.

After the court order, Bharti Airtel will have to pay around Rs 2,600 crore ($351.35 million) and Vodafone Idea Rs 5,000 crore ( $675.68 million) by March 2021 which, in turn, require average revenue per user (ARPU) to increase by 10% and 27% respectively for both the telecom operators, brokerage firm Jefferies said in a note.

Jefferies added that another round of minimum 10% tariff hike is likely in the near term.

Airtel’s ARPUs stood at Rs 157, while Vodafone Idea reported Rs 114 ARPU in the first quarter this fiscal.

To fund AGR penalty and cash losses, struggling telco Vodafone Idea requires a higher tariff hike analysts said.

BofA Securities said that the next round of tariff hike is expected to be in 1-3 months and Airtel and Reliance Jio are best placed to benefit from tariff hike. “Our analysis implies that VIL needs to have Rs 200-240 ARPU over the next 18 months.”

With the additional burden of AGR payments and spectrum repayments resuming in F23, Vodafone Idea’s ARPUs need to be Rs200 in the near term as compared to Rs114 in the first quarter, Morgan Stanley said in a separate report. “Vodafone idea been burning cash every quarter despite capex being significantly lower than its peers,”

Brokerage Motilal Oswal said that with this verdict, the balance sheets of both Vodafone Idea  (VIL) and Bharti Airtel would weaken, hence noise for a tariff hike would certainly grow as VIL would require a massive Rs 110 cumulative ARPU increase in FY22 and FY23 to manage its operations sustainably.

With prevailing low average revenue per users (ARPU), and a settled smartphone market in India, there is a strong case for a price hike. 

 “We have already assumed tariff hike (+20%) in FY21 and ARPU increase of 33% and 49% for Bharti and VIL, respectively, over Q1FY21- Q4FY23. The conversion of the tariff hike to revenue growth is vital and Bharti has delivered a strong conversion rate on the previous hike while VIL has lagged the same,” Emkay equity research said in a note.