Bharti Airtel has kicked off the latest round of tariff hikes in India by increasing prices across prepaid plans by 20-25% from November 26. Market experts expect Reliance Jio and Vodafone Idea to soon follow Airtel’s lead.
The move will further reduce industry competitiveness and help all telcos in India improve their ARPUs – Vodafone Idea in particular, which is struggling to raise money from investors.
India’s second largest telecom operator said that ARPUs need to go up for a “financially healthy business model”. It added that the move will give it “the elbow room” to roll out 5G in India.
“Bharti Airtel has always maintained that the mobile ARPU needs to be at Rs 200 ($2.69) and ultimately at Rs 300 ($4.04), so as to provide a reasonable return on capital that allows for a financially healthy business model. We also believe that this level of ARPU will enable the substantial investments required in networks and spectrum,” the Sunil Mittal-led telecom operator said in a statement.
Airtel currently has an ARPU of Rs 153 ($2.06) compared to Reliance Jio’s Rs 144 ($1.94) and Vodafone Idea’s Rs 109 ($1.47).
As per CRISIL’s estimates, the price hike could boost the telecom sector’s ARPU by 15-20% to Rs 155-160 in the next fiscal year.
CRISIL said that key players have already invested over $67.57 billion between FY 2017 and 2021 to roll out 4G services. Telcos would need to invest at least $9.46 billion at the 5G spectrum auction likely during the next fiscal year if the bidding is prudent.
In other developments, Airtel is also reconsidering its plan to restructure its business from core telecom to separate digital and infrastructure businesses following the Indian government’s move to exclude non-telecom revenues from the purview of adjusted gross revenue (AGR).
As part of structural reforms, India removed all non-telecom items when calculating the AGR from October 1. AGR dues was the most contentious issue in the Indian telecom industry, resulting in operational challenges for all older telcos, especially Vodafone Idea due to high statutory dues.
In a bid to remove the telecom regulatory overhang on Airtel’s digital business and reduce statutory liabilities, Airtel had in April introduced a new corporate structure to sharpen its focus on tapping digital opportunities.
The new structure was supposed to involve Airtel Digital Limited folding into the listed entity Bharti Airtel, which would have included all the digital assets and businesses. The Sunil Mittal-led telco has various digital businesses such as Wynk Music, Airtel X stream, Airtel Thanks, Mitra Payments platform for retailers, Airtel Ads, Airtel IQ, Airtel Secure and Airtel Cloud.
A senior Airtel executive told the Economic Times the telco was waiting for some clarifications from the authorities after which a final decision will be taken. “Now that the government has gone ahead and defined that AGR will exclude all non-telecom revenue, the restructuring might not even be required,” he was quoted as saying.