In a statement, CRISIL Rating had said that the recent hike in tariff by Bharti Airtel in its prepaid plans was very crucial for the healing of profitability and returns profile of the telecom sector. Recently, Airtel announced a 20% hike in the price of its prepaid plans which will be brought into effect from November 26, 2021. CRISIL has said that the changes in these tariffs will pave the way for telecom companies to invest in 5G mobile services over the medium term.
Tariff Hike Could Pave the Way for Sector’s Future
As per an Indiatvnews report, the rating agency explained that the telecom industry requires constant technology up-gradation, which makes it a capital-intensive sector. It said that the prominent players in the industry have already made a huge investment in rolling out 4G services in the country between fiscal years of 2017 and 2021, and the investment is expected to be around Rs 5 lakh crore. This would mean that the telecom companies will have to invest a minimum of somewhere around Rs 70,000 crore at the 5G spectrum auction that might happen next year if they want to go deep into the future with 5G.
Indian telecom operators find themselves among the bottom places of the chart when it comes to ‘Average Revenue Per User ' (ARPU) in the world and has a very lowered return on capital investment. This is the condition despite the fact that India has the second-highest average data traffic per user.
The rating agency speculated that if the other telecom companies followed the same path and went ahead with a tariff hike, it could increase the ARPU of the sector by around 20% and it will increase it to Rs 155 – Rs 160 next fiscal period from Rs 135, which was in last fiscal. It also expected the return on capital of the industry to surge up to 7%.
The last time when the sector witnessed a major tariff hike was in December 2019, which increased the industry’s ARPU by 15%, and the sector saw a 35% rise in its EBITDA – Earnings Before Interests, Taxes, Depreciation, and Amortisation to Rs 72000 crore in the fiscal year of 2021. This time around, if a sector-wide tariff hike takes place, the agency expects a 40% hike in EBITDA of the telecom sector to Rs 1 lakh crore in the 2023 fiscal year as compared to the 2021 fiscal year.