Following Jio, Airtel increases mobile data plans by 21%
Bharti Airtel announced on Friday a tariff increase of 11-21% for all prepaid and postpaid users, effective from July 3. This decision comes a day after its competitor, Reliance Jio, raised its rates by 12-25%. The telcos stated that the primary objective of these tariff hikes is to improve the average revenue per user (ARPU).
Airtel's tariff hike aimed at financial viability
Airtel stated that the mobile ARPU needs to be upwards of ₹300 to maintain a financially viable business model for telecom companies in India. The company believes that this level of ARPU will enable substantial investments required in network technology and spectrum, offering a modest return on capital. The tariff revision by Airtel will result in a modest price increase of less than 70 paise per day on entry-level plans.
Telecom companies seek return on 5G investments
This is the first significant rate hike since 2021, aimed at boosting ARPU amidst the lack of monetization of 5G services. Telecom companies have made substantial investments in purchasing airwaves and rolling out networks for 5G services. After Wednesday's spectrum auction, a tariff hike was anticipated as they look to monetize existing investments before making new capital expenditures.
Anticipated impact of rate hikes on telecom revenue
Analysts predict that the impact of these rate hikes on telecom companies' revenue will be evident by the second and third quarters of FY25. Brokerage firm CLSA recently estimated that Jio, Airtel, and Vodafone Idea need to target at least a 20% hike in headline rates post-elections to grow the sectoral ARPU to around ₹200-217 by FY25-26 from an estimated ₹180 in FY24.
Airtel's MD advocates for substantial tariff repairs
In May, Airtel's managing director Gopal Vittal stated that substantial tariff repairs were required at an industry level as the existing 9.5% RoCE (return on capital employed) was extremely low. He noted that while tariff hikes would lead to some SIM consolidation, the benefits would outweigh the downsides as consumers would adjust their spending to accommodate the higher rates.
Customer response to potential tariff hike
A recent BofA Securities report revealed that according to an online customer survey, approximately 36% of Jio and Airtel users were prepared to accept a potential 20-25% tariff hike post-elections. This finding suggests that a significant portion of customers are willing to adjust their spending habits in response to the revised tariffs.
