Indian telecom companies are looking to implement tariff hikes to maintain their Return on Capital Employed (RoCE) amidst rising operational expenses (OpEx) and customer acquisition costs. In FY23, sales and marketing expenses as a percentage of revenue increased by 11% for Vodafone Idea (Vi), 5.4% for Bharti Airtel, and 2% for Reliance Jio. However, they appear to be waiting until after the Lok Sabha elections to enact these hikes. Despite this, India’s telecom tariffs remain among the lowest globally when measured against per capita gross national income. The last significant tariff hike occurred in November 2021, with the three telcos raising rates by 19-25%.
Airtel’s CEO, Gopal Vittal, highlighted the necessity of tariff increases for the industry’s survival. “Tariff repair will need to happen across the industry. We could start it, but if competition doesn’t follow, it will hurt us, and that’s a challenge,” he stated during the last earnings call. “My own sense is that substantial repairs are needed in the industry. Even at Rs 300 ARPU, we’d still be among the lowest in the world. It won’t jump from Rs 200 to Rs 300 in one shot, but will take a couple of rounds.”
Vodafone Idea’s CEO, Akshaya Moondra, agrees. “We and some of our competitors have mentioned that price recovery needs to happen over time, especially for higher usage tiers, which has been neglected in recent years. The entry-level price increase may not be as high,” he said during the May 17 earnings call.
Analysts predict that tariff hikes may face resistance. Airtel is hesitant to be the first to raise tariffs, and Vi subscribers may resist such increases. A BofA Securities research note indicates, “Vi users are price-sensitive, with 42% uncomfortable with higher tariffs and may downgrade or cancel their secondary SIM. In contrast, only 25-29% of Bharti Airtel and Jio customers surveyed are averse to a 20-25% tariff hike. Additionally, only 12% of subscribers use Vi as their primary mobile connection, compared to 53% for Reliance Jio and 35% for Bharti Airtel.”
