Another round of telecom tariff hikes appears to be on the horizon, with Reliance Jio Infocomm expected to increase rates in the next fiscal year, likely ahead of its anticipated initial public offering (IPO), according to industry sources.
Reliance Jio, the sector leader, previously initiated a tariff hike in June 2024 after nearly two-and-a-half years of static industry rates. The price adjustment saw some plans increase by over 25%, significantly impacting the company’s financials. In the December 2024 quarter, Jio’s average revenue per user (ARPU) surpassed ₹200, although this was below market expectations. The full effect of the hike was observed primarily in the second quarter and is expected to continue influencing the company’s performance in the current and subsequent quarters.
Potential Reasons for the Hike
The expected tariff hikes are believed to be driven by rising data demand and preparations for Jio’s IPO in the next fiscal year. Sources suggest the company aims to secure better valuations and pricing for its IPO, including any potential pre-IPO placements. Despite inquiries, Reliance Industries Limited (RIL) did not respond to requests for clarification on the matter.
Anticipated Scale of the Hike
Industry experts predict that the upcoming tariff hikes may not be as steep as the previous ones. Instead, the increases are likely to focus on premium segments to avoid disrupting subscriber growth. The June 2024 tariff hikes had a noticeable impact on Jio’s subscriber growth, with a muted increase of 1.3 million in the third quarter, following a decline in the second quarter. Interestingly, Jio had not raised tariffs for feature phone users during that period, as noted by US investment bank Jefferies.
Subscriber and Financial Performance
As of December 2024, Jio reported a subscriber base of 482 million, up from 479 million in September and 471 million in December 2023. However, the company experienced a 25-basis-point contraction in margins in the third quarter, attributed to higher operating, sales, and administrative expenses.
According to Goldman Sachs, the anticipated tariff hikes are expected to improve Jio’s cash return on capital invested, which was 10% in FY24, potentially rising to 14% by FY27.
With Jio preparing for its IPO and focusing on maintaining financial momentum, these tariff adjustments could play a pivotal role in achieving its long-term goals.
