Airtel raises tariffs following Jio's rate hike

NEW DELHI: Bharti Airtel on Friday raised tariffs for all its prepaid and postpaid users in a bid to shore up average revenue per user (ARPU), a day after rival Reliance Jio raised rates by 12-15%.

"Bharti Airtel has maintained that the mobile Average Revenue per User (ARPU) needs to be upwards of INR 300, to enable a financially healthy business model for telcos in India. We believe that this level of ARPU will enable the substantial investments required in network technology and spectrum and offer a modest return on capital," Airtel said in a statement. "In this light, we welcome the announcements in the industry to repair tariffs."

It added that Airtel will also revise its mobile tariffs from July 3. "We have ensured that there is a very modest price increase (less than 70 paise per day) on the entry level plans, in order to eliminate any burden on budget challenged consumers," the telco added.

Vodafone Idea is also expected to follow suit.

The first major rate hike since 2021 by a telco is aimed at shoring up average revenue per user (ARPU) in absence of monetisation of 5G services where telcos have made huge investments in buying airwaves and rolling out networks, say experts.

After the conclusion of the spectrum auction on Wednesday, wherein all three private telcos participated selectively, a hike in tariffs was expected as the companies look to monetise their existing investments before going in for fresh capital expenditure.

Jio and Airtel, the top two telecom operators, have already invested over Rs 2 lakh crore in rolling out 5G, but so far there has been no return on investment, say experts. They have been offering free 5G services, in a bid to lure customers towards the latest technology.

The telecom sector last raised tariffs by 20-25% in November 2021. After that, there has been no significant hike, though telcos keep on tweaking certain plans to increase revenue realisation.

Analysts say the beneficial impact of the headline rate hikes on telcos’ revenue would kick in by the second and third quarters of FY25, depending on the magnitude.

Brokerage CLSA recently estimated that Jio, Airtel and Vodafone Idea) need to target at least a 20% hike in headline rates, post-elections, especially if sectoral ARPU is to grow to around Rs 200-217 by FY25-26 from an estimated Rs 180 in FY24.

In May, Airtel managing director Gopal Vittal had said substantial tariff repairs were required at an industry level as the existing 9.5% RoCE (return on capital employed) was extremely low.

Vittal argued that while tariff hikes would invariably lead to some SIM consolidation, the upside benefits are far greater as consumers would re-adjust spends and take the higher rates in their stride.

According to a recent BofA Securities report, as per a recent online customer survey, some 36% of Jio and Airtel users were ready to take a potential 20-25% tariff hike in their stride, post-elections.

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