How Tariff Hikes Can Help Improve the Telecom Industry

Telecom tariff hikes in India have been a major talking point for quite some time now. While end users get to enjoy the benefits for what so ever reasons, everyone knows these tariffs are not sustainable for the Industry, and it is not even viable to run businesses for the huge investments involved. The Telecom industry is Investment hungry, and that doesn't just stop with a thing or two.

We also know India is among the cheapest data offering market in the world, triggered by disruption. In this Analysis, let's look into the aspects of why a Tariff hike is essential and how it can help improve the telecom industry in India from the current scenario.

4G Investments

Let us be crisp without going back to the 3G dates. If we consider the scenario just from the start of the 4G era, the telcos have invested much to develop Nationwide 4G Networks, which is still ongoing. But, if we are right, they are yet to realise the return on investments, and with the current tariffs, it isn't easy. Moreover, continuing further investments required to build digital infrastructure with the cheapest tariffs on telecom services is challenging and won't be viable for any Business or investor.

Also Read: Vodafone Idea CEO Says Industry ARPU Should Have been Rs 350 – Rs 400 Today

While the telcos keep thinking of the best possible and optimum ways to run businesses, the next generation 'G' might have already been pitched by the Network vendors, or some telco with a particular interest announces upgradation to the next 'G', building indirect pressure on everyone to upgrade the Technology and keep up with the competition. However, not every telco might be in a form to follow the upgrade trend, considering different parameters and business scenarios. Advanced Technology is always exciting and preferred; However, various scenarios need to be considered based on the operation market and other dependent parameters.

Indian Telecom Scenario

If we look at the scenario, the Indian Telecom market is at a critical juncture. From around ten plus telecom players in the year 2013 to four players in the year 2023. Three private players and one state-run telco; if we skip one telco that appears to be cash-rich, the rest have their issues to deal with. We all know the troubles with one private telco that urgently needs cash even to operate; If we infer the scenario, the network quality provided by the telco, considering its tariffs and benefits, shows that operations are not even possible with the current pricing. With such a scenario hampering the health of the Telcom Industry, neither customers are happy with service quality nor is the Industry thriving.

Also Read: Reliance Jio Dials Lenders to Fund 5G Expansion to Stay Ahead of Airtel

5G Networks and Investments

Although existing Networks may have the capabilities of 5G Technologies, 5G Networks are not just 1 Gbps speed aspect as publicised currently. Moreover, a locality today may not be the same tomorrow, considering the Network and Business use case; Hence Network maintenance and upgradation is a continuous process which needs huge Capital Expenditure (CAPEX) for digital infrastructure deployment. To achieve all this, Telcos need money, and if we look at the news, even cash-rich companies need investments even to place orders for 5G Gear. A scenario which more or less depicts the money made out of the business with the current tariffs and the reality.

Need for Tariff Correction

Everyone knows who initiated it, but the telcos have a blame game to play foul on. To overcome such a hurdle, Bharti Airtel has taken the initiative to correct tariffs and improve the health of the Industry. But, of course, someone needs to take the leadership initiative to fix the Industry when no one is concerned. On one side, when India is trying to realise the dream of developing indigenous Network technology, it doesn't make any difference if the telecom industry is not in good shape tomorrow.

Also Read: Airtel Tariff Hike in Haryana and Odisha a Positive Move: ICICI Securities

In November, Airtel selectively implemented a Tariff Hike in Haryana and Odisha circles, where the telco withdrew its entry-level minimum recharge pack of Rs 99, which used to be valid for 28 days. Now Airtel offers a Rs 155 recharge pack with unlimited voice, 1 GB of data and 300 SMS. This is a 57 per cent hike in minimum recharge value. It looks like, after observing the hike's impact, Airtel implemented the same hike across seven more circles, taking the total count of circles to 9, where the entry-level tariff is increased. We believe such a step can only be taken if the telco is confident of its services, network and customer base.

While we believe telcos are yet to get significant returns on their 4G Investment, suppose a considerable portion of users migrates to 5G, it then becomes a questionable affair on the investments made on 4G without any value. However, this scenario depends on Network Architecture and Planning and varies with each operator. Only telcos which are serious about Business consider these implications involved.

Impact of Tariff in Haryana and Odisha Circles

TRAI has already published its November 2022 data, and Airtel has added subscribers, which is a positive sign in these two circles.

Digital Infrastructure and Networks

5G needs huge Investments, and it's not a one-time activity. As we know, rolling out and maintaining the wireless networks and digital infra is a continuous process, and this just doesn't have an end. Without significant CAPEX, this doesn't happen, as we all know. And for customers to experience good network quality, support and other digital platform offerings, a significant portion of the investments are from Tariffs. In addition, the digital infrastructure rollout, maintenance and support also need Human resources who need compensation on an incremental basis. So, without tariff corrections, the Industry growth perspective and the Network reach and quality remain doubtful.

Also Read: Airtel Hiking Base Tariffs to Rs 155 in 9 Circles is a Positive Move for Industry

Conclusion

We believe cheap tariffs should be a concerning aspect for Banks and investors, considering the global economic headwinds. If we observe the Global telecom scenario now, even telcos with standard data tariffs are having a hard time and are downsizing operations or reducing the workforce. So, this gives us a cue, and one can imagine the scenario we may face if things don't change in India. It has also become a daily route for us to read about the ailing Telecom Industry for a few years now, and this should change for the good.

And for consumers, irrespective of the tariffs, this will indirectly impact in one way or another. Being an end user, we know it can be hard to digest any news of tariff correction, but if we see the bigger picture considering the Industry and the country as a whole, there is a dire need for things to be set right, and an initiative has already been taken. We need to see how the struggling Industry reacts to it.