India’s second and third-largest telcos – Bharti Airtel and Vodafone Idea (VIL) – are expected to take “indirect methods” to raise effective pricing of their mobile services to drive revenues and average revenue per user (ARPU).
According to a report by the Economic Times, both older telcos will not announce headline tariff hikes as it could benefit market leader Reliance Jio, which is aggressively rolling out new offers to acquire subscribers.
Top executives of Airtel and Vodafone Idea had previously said that current pricing is unsustainable and adds to financial woes. Airtel CEO Gopal Vittal recently said that the industry average revenue per user (ARPU) needs to rise to Rs 200 ($2.7) in the near-term but maintained that it wouldn’t take the lead in raising tariffs but will follow rivals if they increase tariffs.
VIL’s MD & CEO Ravinder Takkar last month told analysts that the telco would not wait for other telcos to raise tariffs but would do so when the time was right. However, it hasn’t been able to announce a tariff hike due to continuous subscriber loss.
Bharti Airtel reported Rs 166 ($2.29) ARPU in the December quarter, while Jio’s ARPU stood at Rs 151 ($2.08). Vodafone Idea reported ARPU of Rs 121 ($1.67) for the same quarter.
Both older telcos could reduce the validity period of postpaid plans and cut down on data and voice allowances on existing prepaid plans without changing the pack value, effectively increasing the cost for end consumers, the publication reported.
Additionally, they are expected to make the plan value of all prepaid packs pre-tax, which would require a prepaid mobile user to pay the tax in addition to the plan MRP (maximum retail price) value.
“Cutting down on allowances would drive customer migrations to higher-value plans or even to booster packs once their allowances expire, both of which would be tariff accretive for incumbent operators,” a telecom executive told the publication.
PhillipCapital, in a note to its customers, said that Vodafone Idea and Airtel could use indirect strategies such as maintaining their current prepaid plans at the same price, but making them pre-tax, which would translate into an effective tariff hike of 18%.
On the other hand, lowering the validity period of some postpaid plans to 24 days from the current 28 days could also result in a 16% effective tariff hike, PhillipCapital said in its note.
Experts, however, believe that the move could backfire with price-conscious low-value prepaid subscribers shifting to Jio, whose tariffs are 10-15% cheaper in the market.
Last month, the Mukesh Ambani-led telco launched two new aggressive bundled offers on its 4G feature phone (JioPhone), targeting India’s remaining 300 million feature phone users.
It effectively dropped its JioPhone usage costs by 25%.
The new Jio plans are also aimed at reversing the recent slowdown in its 4G customer additions.
Analysts said that tariff hike is the only way for Vodafone Idea to stay afloat in the market due to its financial situation. The company has been in talks with investors to raise funds to pay AGR dues and support network expansion.
“…loss-making Vi does not have that choice, and a tariff hike is the only way it can survive, especially if it’s to enhance cash flows and reduce debt. Vodafone Idea will have to take the lead in tariff hikes, be it via direct or indirect methods, and hope Bharti and Jio follow suit,” PhillipCapital said.
In a separate note, BofA Securities said Jio management is unlikely to take a knee-jerk reaction of raising tariffs just because it spent more in spectrum auctions.
“…while in the medium-term, Jio is keen to raise tariffs, we believe in the near term, Jio focus could be gaining subs, especially on 2G. Both Jio and Airtel, in our view, will focus on improving their market share in the near term given their stronger balance sheets as compared to Vodafone Idea,” it added.
Credit Suisse said that Airtel would be the main beneficiary of either outcome of price hike in the near term or from continued market share gains from Vodafone Idea in case of delay in price hike.