Telecom Operators Likely to Make Quick Call for Tariff Hikes

Tariff hikes are said to be “on the cards” as telecom operators are “required to make sizeable payouts.”

By October 10th, 2020 AT 7:02 AM

Tariff hike is said to be on the cards

ICRA, a credit rating agency on Thursday said that the hike in the telecom tariff is “on the cards” as the telecom operators in India are “required to make sizeable payouts” to the government. The firm highlighted that the telecom operators are required to pay for their adjusted gross revenue (AGR) liabilities, auction installments and regular revenue share to the government. The Supreme Court in early September provided a 10-year time period for the telecom operators to pay their AGR dues. ICRA believes that a “sustainable and sizeable” average revenue per user (ARPU) expansion is “critical” from the perspective of the telecom operators to meet their payout obligations.

ICRA Says Telecom Battleground Shifted to Postpaid Segment

ICRA in a release highlighted that it was “unclear whether the next round of tariff hikes” would be pushed by all operators or “limited” to the operators staring at the AGR dues.

“While the industry still grapples with elevated debt levels and weak debt coverage metrics, the last fiscal has witnessed some respite in terms of steady ARPU improvement driven mainly by the tariff hikes implemented in December 2019, the deleveraging measures undertaken by the telcos, and moderation of capex intensity,” Anupama Arora, vice president and sector head of Corporate Ratings at ICRA, said in the release.

With the introduction of JioPostpaid Plus Plans in September, ICRA said that the postpaid segment has emerged as the new battlefront among the telecom operators. The new JioPostpaid Plus is currently available in multiple tiers including an entry tier priced at Rs 399 and a top-tier plan carrying a price tag of Rs 1499. In early October, Bharti Airtel expanded the availability of its entry-tier postpaid plan priced at Rs 399 to more circles across India.

“It remains to be seen how this will impact competition as typically India is primarily a prepaid market while internationally, many countries are dominated by postpaid connection,” the firm said in its release.

According to the Telecom Regulatory Authority of India (Trai), the prepaid segment accounted for over 95% of the total wireless subscriber base for the period ended March 31, 2020.

ARPUs Expected to Hit Rs 220 in Medium Term: ICRA

ICRA said that the postpaid segment provides “higher ARPU” and greater user “stickiness” to the telecom operators.

“RJIL has upped the ante in this segment, which can impact the ARPUs and profitability of the incumbents,” Arora said. “Notwithstanding the competitive intensity, the telcos have been able to improve the ARPUs given the tariff hikes implemented in the past and consistent upgrades of 2G subscribers to 4G.”

Arora highlighted that the tariff hikes in December have delivered an “improvement” to the industry revenues in the first quarter of the current financial year.

“ICRA expects this trend to continue as the telcos will dial the tariff hikes again and the ARPUs are expected to reach Rs.220 in the medium-term,” Arora said.

The firm said that the industry debt declined to Rs 4.4 lakh crore as on March 31, 2020. However, the firm highlighted that the apex court decision on AGR dues “added to the woes” of the telecom operators.

Ankit Jain, assistant vice president of ICRA, said that the operators will have to find further avenues to reduce their debt such as “monetisation of assets like fibre, data centers.”

“Given the precarious position of the balance sheet of the industry, India is likely to give a miss to the 5G call for some time,” Jain said. “Further, the industry is in the process of a transformation from being a plain vanilla voice and data service provider to more of technology and content driven industry and a leaner balance sheet will play a major part in this transformation.”

Born in India, Yogesh loves to travel and has lived in multiple countries including New Zealand and Canada. His bylines can be found on various newspapers and blogs throughout the world, including Vancouver Sun, Surrey Now-Leader, Daily Hive , Investing News Network and Rach F1.

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