Indian telecom operators are testing the waters by gradually raising tariffs in a price-sensitive market that has one of the lowest rates in the world. Both Bharti Airtel and Vodafone Idea have increased tariffs as they look to earn a reasonable return and ease their financial stress.
Vodafone Idea on Tuesday announced it will increase tariffs by 20-25% from November 25 for its prepaid users. It has increased tariffs for entry-level deals by 25%, while for all other packages the increase is 20%. Rates for data top-ups have also been increased.
On Monday, Bharti Airtel announced a revision of its prepaid mobile tariffs. The hikes for various tariff plans range from 20 rupees to 500 rupees per month. The new tariffs will kick in from November 26.
A few months ago both Vodafone Idea and Bharti Airtel hiked rates for entry-level prepaid plans and certain postpaid and family packages. For the two companies, pre-paid customers account for 90-95% of the customer base.
Both companies are aiming to improve the average revenue per user. At present, Bharti Airtel enjoys the highest revenue per user. During the second quarter of this financial year, it reported revenue of 153 rupees per user. This is higher than that of market leader Reliance Jio (143 rupees) and Vodafone Idea (119 rupees).
However, Bharti Airtel CEO Gopal Vittal said earlier that the telecom industry cannot continue to function at the current prices for voice and data services. The company maintains that the average revenue per user needs to be about 300 rupees to attain a financially healthy business model.
Vodafone Idea CEO Ravinder Takkar said last month that the company would not shy away from raising prices on voice and data services. He also insisted that the average revenue per user should be about 200 rupees in the short run and 300 rupees eventually. Vodafone Idea has also been demanding regulatory intervention for setting a floor price for voice and data services.
The country has one of the lowest telecom tariffs in the world. The entry of Reliance Jio in 2016 disrupted the market as it offered freebies and kept tariffs low, forcing others to follow suit.
In the resulting shakeout, about 10 operators, including Tatas and Uninor, had to exit the market and only two private players survived – Bharti Airtel and Vodafone Idea. The latter was a merged entity of Vodafone Plc and Idea Cellular.
The average revenue per user in the Indian market dropped significantly from about 220 rupees to less than 145 rupees. Current data tariffs in India are the lowest in the world.
According to a UK-based price tracker, 1 GB of data in India was selling for less than 10 cents in 2020. In comparison, it is $8 in the US, $1.4 in the UK and 60 cents in China. The Indian telecom industry is estimated to be reeling under a debt of nearly 5 trillion rupees ($67.11 billion).
In September, the Indian government announced a relief package for the struggling telecom sector. It included a four-year break for telecom companies from paying statutory dues, 100% foreign investment through the automatic route, permission to share scarce airwaves and a change in the definition of revenue on which levies are paid.
The government, however, clarified that companies using the four-year moratorium would have to pay some interest. The government concessions also included the scrapping of spectrum usage charges for airwaves acquired in future spectrum auctions.
On October 1, the government also redefined the contentious Adjusted Gross Revenue to exclude all non-telecom revenue. Items such as gains from forex fluctuations, insurance claims, capital gains on account of the sale of fixed assets and securities and revenue from operations other than telecom activities have been excluded while calculating revenue.
The definition has been the subject of a long-standing battle between the telecom players and the government since 2005. A Supreme Court verdict in 2019 favored the government’s contention that non-telecom activities should be included while computing adjusted gross revenue.
This left a huge burden on legacy operators Bharti Airtel and Vodafone Idea. The fresh definition is expected to provide them relief as it would reduce their future payment obligations.