Mobile Broadband Penetration Approaching All-Time High, Result Could be Increased Tariffs

The telecom operators might be on the verge of increasing tariff prices as mobile broadband penetration is reaching a tipping point

Highlights
  • By 2022, ARPU is also expected to rise to pre-Reliance Jio levels
  • By the end of 2019, mobile broadband penetration reached 65%

Reliance Jio’s entry to the telecom industry back in FY17 had bruised revenues and kick-started the data tariff war in the sector. As a result, the Average Revenue Per User (ARPU), a key industry parameter, had dipped by 38% after the coming of Reliance Jio. However, now as per a new ET Telecom report, telecom operators are expected to raise tariff prices as the mobile broadband subscriber penetration reaches 65%. As smartphone users grow addicted to increasing data usage, and as data demand surges in the industry, the ARPU levels are expected to return to pre-Jio levels with the beginning of the rise starting in mid FY20 and tapering off by March 2022.

Reliance Jio’s Probable Reason for Increasing Tariff Prices

It was known that by the end of the third quarter of FY19, Reliance Jio had 280 million mobile broadband subscribers, Vodafone Idea had 120 million mobile broadband subscribers and Bharti Airtel had 123 million mobile broadband subscribers. But in the last quarter of FY19, it became clear that Reliance Jio boasted of 300 million subscribers. However, there is also a new report which has highlighted that Reliance Jio might be in dire need for Rs 9,000 crore worth of funds to keep its Special Purpose Vehicle (SPV) intact which were initially created to hold its demerged tower and fibre assets. There is also the issue that rival telecom companies like Bharti Airtel and Vodafone Idea are also planning to raise massive amounts of funds to keep their capex high.

Need for Funds, Higher ARPU and Other Reasons Might Mean Higher Tariffs

Since Bharti Airtel and Vodafone Idea have already announced their planning of raising Rs 25,000 crore worth of funds in the coming months through private equity, Reliance Jio might think to raise tariff prices, as per a JP Morgan report. Both the rival telcos will be bidding on expanded 4G reach and robust network post the funding is received. Reliance Jio’s refinancing requirements are also dealt away with since Jio has come into a 20-year pact for 50% of the fibre capacity and is also the anchor tenant on the 175,000-odd towers. Its problems would be solved if the other telecom operators come onboard as tenants for Reliance Jio’s towers, but since both the operators have their own tower wings, it might be tough for Reliance Jio to get tenants. However, there is a chance that internet service providers (ISPs) could be tenants for fibre services.

Now it is crucial to note that the need of Rs 9,000 crore for Reliance Jio which it would need for meeting the expenses of lease deals combined with the factor of tipping point penetration might urge the Mukesh Ambani led telecom operator to increase tariff prices. Since other telecom operators are already focusing on increasing their revenues and dumping non-paying subscribers, the cards might turn, and Reliance Jio could have to raise tariffs.

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Arpit spends his day closely following the telecom and tech industry. A music connoisseur and a night owl, he also takes a deep interest in the Indian technology start-up scene and spends rest of his time spilling poetry and stories on paper.

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