Reliance Jio, Airtel and Vodafone Idea will have to substantially increase their average revenue per users (ARPUs) to achieve long-term sustainability at a time when the sector is going through a rough financial phase in the wake of AGR-related payment issue.
ICRA said that these telcos need to increase their ARPU annually by 13-30% to be able to meet the AGR related payouts along with the existing debt repayments as well as the spectrum instalments which will start from FY2023.
Brokerage Motilal Oswal said that each player needs an ARPU hike – VIL needs to survive, Jio needs to justify its high valuations in the recent investments and Bharti needs to deleverage.
Industry ARPU needs to reach Rs 200
ICRA said that the telecom industry ARPU would have to increase to Rs. 200 in the medium term for viable operations and thus, further tariff hikes cannot be ruled out. The December tariff hikes have resulted in steady ARPU improvement in the market.
The sector recovery is also substantiated by deleveraging measures undertaken by telcos and moderation of capex intensity, the uncertainties around the AGR issue persist.
Motilal, in its note, said that near-term economic headwinds and history of the last ten years do not paint a pretty picture for the telecom industry; however, lately, the market construct has turned highly favourable. "Nevertheless, any tariff hike is possible only if there is a collective effort on the part of all telcos," it added.
ICRA said that a consistent increase in data usage and steady up-gradation of customers from lower technologies to 4G would also drive the ARPU growth going forward.
The work from the home regime has resulted in a substantial increase in mobile data usage and has also resulted in general up-trading of ARPUs in terms of customers upgrading their plans for higher data allowance.
"These would necessitate additional investments to augment the network capacity for the surge in demand and might result in additional spectrum requirement as well," ICRA said.
"We expect that the increase in ARPUs required for various telcos to be in the range of 13-30% annually going forward to be able to meet the AGR related payouts (assuming a 20-year payment term) along with the existing debt repayments as well as the spectrum instalments which will start from FY2023. The industry ARPU will have to increase to Rs. 200 in the medium term for viable operations and thus, further tariff hikes cannot be ruled out," Anupama Arora, Vice President and Sector Head, Corporate Ratings, ICRA, said.