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.
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.
As per Kotak Institutional Equities, while Airtel has no pressing cash flow-mismatch or leverage issues, a desperate Vi must single-mindedly gun for price hikes as quickly as possible. New Street Research estimates Vi needs to increase tariffs by at least 20% in November or December to improve its cash position and service its first AGR instalment due in March 2021.
Pump in Money for Latest Technologies
In addition, to ride on the next growth bandwagon, it is important that the sector invests in new technologies. Amid the Covid crisis, the telecom operators started using new technology like massive MIMO at a scale not seen anywhere else in the world, increased capacity for setting up virtual boardrooms, providing solutions to stay connected with business activities, ensuring integrated business connectivity, and deploying suites of digital tools for the enterprise customers.
Fortunately, during this span, the operators got fully equipped to handle the huge traffic load. Mobile, fixed broadband, DTH, and fibre networks were fully geared to serve customers better.
All the telecom operators began setting up the business contingency plan (BCP) mode to manage the surge in bandwidth as more people increasingly started to work from home than they did before the lockdown.
Moving forward, the consumers should prepare themselves for a price hike as an investment in new technologies means an improvement in telecom services. A survey by brokerage firm JP Morgan showed 88% users’ ability to absorb 10% tariff hikes and high propensity to pay for higher speeds and content.