Why Indian Telecom Operators Are Contemplating Mobile Tariff Hikes?

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The Indian telecom sector showed its prowess amid the crisis as it stood tall and provided critical support for the functioning of the entire economy. The telecom sector in India, which offers the lowest tariffs in the world, is a crucial sector for the country. Not only that, but its contribution is significant to the country’s GDP and it is a growth enabler for other sectors as well.

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But still, it is bogged down by the existing challenges of capex, tariffs, OTTs, etc, resulting in plunging revenues. The financially stressed telecom industry is already grappling with AGR payments, spectrum payments, high Spectrum Usage Charges (SUC), License Fee (LF), USOF and other levies resulting in the sector being overtaxed. And, the need of the hour is that it improves its ARPU.

Why Multiple Tariff Hikes Needed?

The sector hiked tariffs by about 25% in December 2019, hoping for the revival of the industry. But still, as per experts, the telecom sector needs multiple rounds of tariff hikes to cover their cost of capital and improve ARPUs. According to a brokerage firm Motilal Oswal, “Each player needs an Average Revenue Per User (ARPU) hike as Vodafone Idea needs to survive, Reliance Jio needs to justify its high valuations in the recent investments and Bharti Airtel needs to deleverage.”

“Unlike the last 10 years, Bharti Airtel could garner more than 5% FCF yield, while Reliance Jio could do better with respectable RoCE. This should allow healthy re-rating. Vodafone Idea’s fate is dependent on the AGR case resolution even as we await stability in market share,” it mentioned in a report.