Telecom companies have again increased the tariff, now you will have to spend more money to charge

Consumers should now be ready to pay higher phone bills at frequent intervals. Consumers’ phone bills are now going to be higher. Telecom operators have increased tariffs by up to 25% in the last two days. On Thursday, Reliance Jio increased tariffs by 12-25%, while Bharti Airtel increased it by 10-21%. After this, this trend continued on Friday as well when Vodafone Idea also increased tariff rates by 10-23%.

It seems that the days when there was a long gap between tariff revisions, sometimes even more than two years, are over. The last time operators increased tariffs was in November 2021 and before that in December 2019.

Analysts believe this change in strategy is due to Reliance Jio now focusing on monetisation rather than gaining market share, as its tariffs are the lowest among competitors. This view is reinforced by the fact that Jio took the first step in making tariff hikes. In 2019, tariff hikes were led by Vodafone Idea and in 2021, Bharti Airtel last raised tariffs.

“Jio followed Bharti in raising tariffs in 2019 and 2021. Since then, Jio has further consolidated its market leadership, which could lead to it coming out ahead this time,” Jefferies said in its report on Friday. “Jio’s limited participation in the spectrum auction this week suggests its focus on network monetisation is increasing and its move to raise tariffs suggests it is more confident that its subscribers are unlikely to decline. The increased focus on monetisation could also be a precursor to its imminent listing,” the brokerage firm added.

Telecom industry executives said that even after the hike, Bharti’s tariffs remain at a premium to Jio, though the gap has narrowed slightly. So, going forward, Jio knows that if it raises tariffs, Bharti and Vodafone Idea will do the same and a similar gap will remain. “In this case, it does not have to fear losing any customers and can focus on monetisation. This is a good sign for the industry, where tariff hikes will happen at frequent intervals rather than in long stretches,” said an industry executive.

Jio is in an advantageous position to make the first move as its tariffs are at a discount to those of its competitors. Conversely, there is a risk if Bharti makes the first move as its tariffs are at a premium. If Jio does not do so, Bharti may be forced to retreat due to customer attrition due to the high margin.

Kotak Institutional Equities said in its report, “Unlike Bharti and Vodafone Idea, which have been very vocal on the need for tariff reforms in the industry, Jio has not spoken openly about the need for an industry-wide tariff hike. However, the need for Jio to raise tariffs was equally (if not more) pressing, given 1) its large 5G investments; and 2) further erosion in return on capital employed and free cash flow. Jio’s leadership in raising tariffs is an emotional positive for the telecom industry.”

Jio’s free cash flow turned negative at Rs 15,100 crore in FY24, as cash interest costs rose sharply to Rs 13,600 crore. Moreover, the company’s network capital expenditure grew 60% year-on-year to Rs 41,000 crore. The company’s return on capital employed (RoCE) further deteriorated to sub-6% levels due to higher investments and the absence of 5G monetisation.

Industry executives said the industry will have no choice but to hike tariffs frequently, as average revenue per user is now a bundled affair. “In 2019, tariff hikes led to 95% of ARPU growth. Now it will lead to 65% of growth. This is because now services come bundled with multiple OTT services, so revenues need to be shared with them,” industry executives said. Brokerage firm CLSA expects Jio’s ARPU to grow 6-13% from Rs 182 to Rs 206 and Rs 218 in FY25 and FY26. For Airtel, it has assumed an 11% year-on-year growth in ARPU to Rs 228 in FY25. Morgan Stanley has estimated that blended ARPU for Bharti and Reliance Jio will deliver gains in the range of 16-18%.

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