Bharti Airtel Ltd’s pilot to raise baseline tariffs from ₹99 to ₹155 for prepaid customers in two circles of Haryana and Odisha will not only be a test for the No. 2 telco, but for the industry overall, as its success could mean far higher levels of increase in tariffs than seen in previous years, sector watchers said. Telcos could adopt a two-pronged approach where the bottom of their user base is pushed upwards to the ₹155 plan from the ₹99 plan, and the upper end of prepaid tariffs is raised further by 10-20%, as is being anticipated on the lines of the last tariff increase in November 2021.
Pushing entry-level consumers to buy a higher value pack will give an immediate upside of 57% in tariffs, analysts have noted, adding that such a move would lead to an increase in mobile revenues of Airtel by about 2.5-3%. However, asking customers on the other end of the prepaid segment to pay up more for the existing plans would mean even higher average revenue per user (Arpu), a key metric of the telco’s profitability.
Raising the baseline level of tariffs and increasing headline tariffs, as is expected, together will lead to a big upside for telcos’ Ebitda levels which would, in turn, benefit the financial health of the entire industry,” said Prashant Singhal, global TMT emerging markets leader at EY. All else being equal, a 5% increase in mobile ARPU can lead to approximately 4% upside to estimated FY24 Ebitda, said analysts at Citi Research, highlighting that another round of tariff hike, if successfully executed, could be a key positive catalyst and driver of investor sentiment amid an expected increase in 5G CAPEX.
Airtel and Vodafone Idea, which sell prepaid recharge packs, have called for another round of tariff increases after the last round in 2021.
This could also mean a positive for Vodafone Idea that has been trying to raise funds for some time now. Investors could see rising Arpu as a sign of improvement of the company’s finances, a sector specialist said on the condition of anonymity. Airtel and Vodafone Idea, which sell prepaid recharge packs, have called for another round of tariff increases after the last round in 2021; reiterating the need for average revenue per user or Arpus becoming sustainable in order to improve the financial health of the sector. Telecom tariffs in India are among the lowest in the world, and both Airtel and Vodafone Idea have said that Arpus needed to rise to ₹200 and gradually to ₹300 over the coming years.