Tariff hike: Millions of mobile users in India will spend more on services

tariff hike mobile services
Image by tashatuvango | Bigstockphoto

India’s older telecom operators — Bharti Airtel and Vodafone Idea — have tweaked their prepaid tariff plans, which will effectively make mobile services costlier by up to 30% in the coming six weeks.

The latest move is seen as a precursor to a full-fledged round of tariff increase in the country. Prepaid users make up well over 90% of the Indian telecom industry’s subscriber base.

The last round of tariff hikes took place in December 2019, when all three telecom operators increased rates by about 20% across price points.

Airtel has made its entry-level plan 60% dearer at Rs 79 ($1.06) by officially removing its Rs 49 ($0.66) entry-level prepaid plan. On the other hand, Vodafone Idea halved the validity of its entry-level plan, effectively pushing customers to opt for the Rs 79 plan to avail of 28 days validity.

Jio, however, hasn’t made any change in its prepaid tariff. It already offers Rs 39 ($0.53) prepaid for a 14-day plan and Rs 75 ($1.01) for a 28-day plan for its 4G feature phone (JioPhone users). Smartphone users can avail of services starting at Rs 98 ($1.32) for a 14-day plan and Rs 129 for 28 days.

According to media reports, the Sunil Mittal-led telecom operator will soon make similar changes to its prepaid plans across price points as part of a broader tariff hike strategy to increase average revenue per user (ARPU) and profitability.

Vodafone Idea will soon increase prices for entry-level plans at the national level to push low-paying users to higher-paying plans.

Market experts believe that initial tariff tweaks by Airtel and Vodafone Idea may take two to six months for the increase to happen across price points this time.

“Tariffs will go up by 30-35% now that the economy is improving and the impact of Covid-19 second wave is easing. Affordability should not be an issue as tariffs in India are below global benchmarks,” said Rohan Dhamija, partner and head of India and the Middle East, at Analysys Mason was quoted as saying by the Economic Times.

Airtel and Vodafone Idea’s ARPUs stood at Rs 145 ($1.95) and Rs 102 ($1.37) in the fourth quarter of last fiscal. Jio’s ARPU in Q1 of the ongoing fiscal stood at Rs 138.4 ($1.86).

Both telecom operators have already increased the prices of postpaid plans for corporate customers. Airtel, for instance, killed two entry-level plans for corporate postpaid users and changed offers for retail postpaid customers. Vodafone Idea also reduced benefits for its corporate postpaid users, pushing them to switch to high-paying plans.

“Overall, while these changes are only marginally accretive to revenues we see as a step in the right direction and following from Jio’s initiative earlier with the prepaid price Changes,” analysts at brokerage UBS said in a note.

UBS analysts added that ARPU increase in the near term will be gradual and will have to be driven by reducing data allowance or price tweaks in the high-end market, which is exactly what Jio and Bharti Airtel are trying to do. “We will closely monitor Jio’s response to these changes.”

Credit Suisse’s analysts said the impact of the entry-level plan tweak is unlikely to be meaningful, and the move needs to be monitored if it is extended to pan India level.

“Overall, we continue to view Airtel as better placed to benefit from the expected industry repair, along with organic ARPU improvement from market share gains in new 4G customers and up-gradation of 2G customers to 4G. We believe that delay in tariff hikes or fundraise by Vodafone Idea could accelerate market share loss for VIL with Airtel being one of the beneficiaries,” Credit Suisse analysts added.

Both Airtel and Vodafone Idea have been stressing the need to raise tariffs and average revenue per user (ARPU) to improve the sector’s health.

Airtel CEO Gopal Vittal recently said that prices of data and voice services need to be increased as the current levels of tariffs are unsustainable for the industry. He had then said that tariffs needed to go up, and the average revenue per user needed to be close to Rs 200 ($2.69).

“The biggest issue that is a problem in this sector today is the pricing which is much lower than it needs to be. A tariff hike is absolutely needed. We believe that floor pricing remains the best and the most preferred way to fix this issue,” Ravinder Takkar, managing director and CEO, Vodafone Idea told analysts last month. Both telecom operators recently told the Telecom Regulatory Authority of India (Trai) that a floor pricing is needed for telecom tariffs.

Related article: India’s older telcos preparing for indirect tariff hike to boost profitability

Be the first to comment

What do you think?

This site uses Akismet to reduce spam. Learn how your comment data is processed.