There are a lot of talks about operators aiming for a higher average revenue per user (ARPU) in the industry. While there are many who understand the reason, there are many who question what would a higher ARPU change if there are overall profits in the books of the telcos. For example, why should Reliance Jio care about ARPU if it is making thousands of crores in profits? People who think this way would term ‘tariff hikes’ as totally pointless since that would only benefit the companies and increase costs for the customers. But that’s not seeing the larger picture. Here’s what you should know about why telcos are eyeing higher ARPUs.
Higher ARPUs Helps Telecom Operators to Sustain Profits With Fewer Customers
The thing is, regardless of the number of customers under their belt, the telcos need to make investments in spectrum, equipment, maintenance, pay salaries, pay off statutory dues, and then out of what’s left, distribute amongst the investors. On top of this, there’s a lot of money being spent on advertisements, research and development to come out with more innovative services; and this takes a lot of money.
Subscribers keep on increasing and reducing; while that is uncertain, what can be ensured by the operators is regardless of the kind of subscriber base they have, they are earning more than they are spending.
In India, telecom operators spend a lot of money on their networks and services but still offer data at very cheap rates. Cheap data reduces their earning per customer, which affects their overall profits or losses. Further, looking at low ARPU for the industry, new investors are afraid to jump in the ship because they are afraid of never getting their money back.
For those who don’t understand, it is the ‘nature’ of a business to maximise profits. The telecom operators are individual businesses that are backed by investors looking to make their money back and then earn profits as well. Thus, while you as a customer might not appreciate the operators going for a tariff hike to increase their ARPU, you as an investor might.
Make no mistake; I am not asking you to invest in these companies; I am just giving you a perspective. While the operators have been investing in their networks heavily, their returns have been capped at a certain level because of the low ARPU. This might affect their ability to make future investments into 5G technology and other things.
The telcos are not evil to go for high ARPU; they are just businesses like every other who want to earn more profits, and what’s wrong with that if they are doing it fairly and still offering world-class cheap data rates.
I know there are many who can’t afford even the plans on the cheaper end today, and thus a tariff hike for high ARPU sounds insensitive. But there are also investors and these companies who need this to survive. So it’s a dilemma that can only be solved if India’s economy upgrades, but that is an entirely different conversation.