The telecom sector in India has been staring at ballooning debt, tremendous pressure and low revenue over a few years now. Finally, the horrifying story of telcos ends as Bharti Airtel hikes tariffs by 25% for all its prepaid plans. This move will trigger sector-wide price revisions and revitalise the ailing sector. Since 2019, telcos have been making minor tweaks in their plans to improve tariffs. This is the first significant step taken by Airtel, which has boosted the ailing sector’s morale.
What Has Happened?
On Monday, the news media carried headlines of Bharti Airtel raising its tariffs. The company hiked tariffs by 25% in the entry-level segments. Airtel wants to push up its ARPU (Average Revenue Per User) to Rs 200 in the medium term from Rs 153 at the end of Q2FY22. In the long term, the management plans to take the ARPU to Rs 300 level.
Now, Vodafone Idea is expected to follow the footsteps of its competitor. Anyways, the tariff was long overdue for the weakest telco of the lot. Vodafone will have to hike its tariffs in order to increase its ARPU. The company needs at least $1 billion over the next 6-9 months to repay its non-spectrum debt and increase Capex. The tariff hike will now help in pocketing more revenue for Vodafone.
Why Should It Bother You?
The tariff hike is not a positive news for the consumers as they will have to pay more now. In a different perspective, investors are loving this news and have gone on a buying spree. The shares of Bharti Airtel shot up to about 6% hitting new highs and so does Vodafone Idea. The hike in tariffs will now finally boost the books of telcos. It would now also decrease the competitiveness between the three telcos and aid their RoCEs (Return on Capital Employed).
What Lies Ahead?
The government had recently given some breathing room to the telcos by announcing a relief package, providing a 4-year moratorium to ease immediate cash flow constraints to the telcos. Followed by the tariff hike now, the telcos will appear to be in a better position to be able to garner some more revenue. The fear of Vodafone Idea vanishing from the sector is far gone now. With the government's relief package and tariff hike, the industry will continue to remain a three-player market. Although higher ARPUs will not fill the deep holes of the telecom industry, it surely brings in an air of optimism after several years.
