The focus of telecom operators at the moment is entirely on increasing the Average Revenue per User (ARPU). Before the entry of Reliance Jio, the ARPU of telcos like Bharti Airtel, Vodafone and Idea Cellular used to be between Rs 200 and Rs 250. However, it dipped to less than Rs 150 in recent years thanks to the low-cost tariff plans. The effect of tariff hike that happened in December 2019 is showing up as Airtel's ARPU increased to Rs 162 in the quarter that ended on September 30, 2020. Reliance Jio also showed some increase in ARPU increase during the July-September 2020 quarter. ICRA now predicts that the ARPU of telcos will rise to Rs 220 on the backing of 2G to 4G subscriber upgrading and another tariff hike that's right around the corner.
ARPU Could Increase to Rs 220 on the Backing of 2G to 4G Customer Upgradation
In the quarter that ended on September 30, Bharti Airtel reported an increase of 14.4 million in 4G user base which is staggering as Jio managed to add just around eight million 4G users during the same period. Anupama Arora, Vice President and Sector Head, Corporate Ratings, ICRA Ltd, mentioned that the 2G subscriber migration to 4G would help telcos increase the ARPU to Rs 220 in the mid-term. He also added that the tariff hike would be crucial for all the telcos.
He also stated that telcos have a large number of pay-outs towards spectrum purchase, AGR dues, and so on. So the pay-outs mean the telcos will have to maintain a sustainable ARPU. "The ARPU expansion will result in revenue growth and given the high operating leverage, the margins are also expected to expand. These measures are expected to translate into an improvement in the debt coverage metrics of the industry, even as the overall debt remains high," Anupama Arora, as reported by ET Telecom.
The industry revenue will likely grow by 11-13% over the next couple of years, according to ICRA. The firm also predicts the operating margins of telcos will likely show an improvement of around 38% for FY22. ICRA further says the overall telecom industry debt to remain at Rs 4.7 lakh crore.
Despite the tariff hike that happened last year, India still has one of the lowest tariff plans in the world. And the same will continue after the upcoming tariff hike. Vodafone Idea already showed the first signs of tariff hike by increasing the prices of entry-level postpaid plans. Analysts predict Vi will hike the tariffs first, whereas Airtel and Jio will watch the industry closely before hiking the prices.