What’s the news?
Telecom players hike prepaid tariff by 20-25%
What does that mean?
Airtel and Vodafone Idea have announced a 25% increase in mobile prepaid tariffs from Nov 25th. Following this move, Reliance Jio will increase prepaid tariffs by 20-21% from December 1st.
A closely tracked metric in the telecom space is the Average Revenue Per User (ARPU). As of September end, Jio’s ARPU was Rs 144, while Airtel and Vi clocked in ARPU of Rs 153 and Rs 109 respectively Indian telecom companies are now strongly focusing on improving ARPUs while retaining their active subscriber base.
Indian telecom is a prepaid heavy market that is extremely price-conscious.
Entry-level tariffs play an important role, especially with mobile number portability. Airtel and Vi’s entry-level tariff plans start at Rs 99 whereas Jio will have an entry-level plan of Rs 91.
Of the three private telecom players, Vodafone Idea and Bharti Airtel, are burdened with a Supreme Court judgment that asks them to pay more than Rs 58,250 crore and Rs 43,890, respectively, as adjusted gross revenue (AGR) dues.
Though both the companies have opted for the four-year moratorium on the spectrum and AGR dues, they will have to come up with the funds for the payment once the moratorium ends. The tariff hike announced by the telecom operators is a much-needed step towards profitability and the returns profile of the sector.
Ever since the entry of Reliance Jio, the telcos have been undercutting each other by slashing call as well as data usage rates. The competition has been so intense that the telecom industry’s average revenue per user touched Rs 67 in September 2018.
How does that impact your wealth?
Historically the telecom sector was a promising sector for investors. However, due to high competition, the sector lost its sheen. We have looked into the exposure of all mutual fund schemes to the telecom industry. As per the latest portfolios, the exposure to the Telecom sector is a total of Rs 67,699 Cr out of which Rs 39,034 Cr is invested in equity and Rs 28,025 Cr is invested in debt.
The tariff hikes combined with the relief measures approved by the Union Cabinet in September this year can put the telecom sector on a path to sustainability once again. This will have a positive impact on the financial health of most players in the telecom business over the long term.