Financial stress prompts Airtel, Vodafone Idea to hike tariffs from December 1

Mobile data charges in India are by far the cheapest in the world even as the demand for mobile data services continue to grow rapidly, the company said.
Vodafone-Idea (File Photo)
Vodafone-Idea (File Photo)

NEW DELHI: Subscribers of Bharti Airtel and Vodafone Idea will have to shell out more for mobile plans come December 1, with both companies announcing on Monday that current prices are unviable and “suitable” tariff revisions will be made from next month. The exact quantum of tariff hikes will be disclosed later. 

“Mobile data charges in India are by far the cheapest in the world even as the demand for mobile data services continue to grow rapidly," said Vodafone Idea, going on to note that “the acute financial stress in the telecom sector has been acknowledged by all stakeholders”. 

“We understand,” Airtel added in a separate statement, “that TRAI is likely to initiate a consultation for bringing rationality in pricing in the Indian mobile sector which has been operating at prices that have been eroding viability”. “The sector is highly capital intensive with fast changing tech cycles that require continuing investments. It is, therefore, extremely important that industry remains viable to support vision of Digital India," it observed. 

The tariff hikes come amidst a period of intense financial stress for telcos, with both Airtel and Vodafone Idea posting record losses during the second quarter. In the case of the latter, its Rs 50,922 crore net loss for Q2FY20 was the largest ever posted by an Indian company, while Airtel’s net loss came in at Rs 23,045 crore. 

The unprecedented magnitude of the losses were primarily due to huge provisioning requirements arising from the Supreme Court’s October 24 verdict on adjusted gross revenue (AGR). The day had seen the apex court side with the government’s stance that AGR, which is used to calculate spectrum usage charges and license fees owed by telcos to the exchequer, should include non-telecom revenues too. The SC also ordered around 15 defunct and active telcos to pay up a cumulative Rs 92,640 crore to the Department of Telecom (DoT) within three months. 

Consequently, both Bharti Airtel and Vodafone Idea recognised mammoth charges toward the AGR liability, with the latter stating that unless some government relief is in the offing, it would not be able to continue as a going concern. 

While the AGR judgement is only the immediate trigger for the crisis, telecom companies have been facing a sharp reduction in overall tariffs ever since the entry of Reliance Jio in 2016 brought prices crashing down. According to TRAI, the previously lucrative mobile data segment saw average revenue per user (ARPU) crash from Rs 269 per GB in 2016 to just Rs 11.78 per GB in 2018, while overall mobile service ARPU has fallen from Rs 81.39 per month in 2017 to Rs 70.55 per month in 2018. 

“The current rates are non-viable and lead to extreme margin pressure. In fact, companies had already stopped cutting tariffs over the last two quarters. As for the announced hikes, Jio’s price points will still act as a mitigator to prevent any sharp increase since its plans are still substantially cheaper than its competitors',” said a senior industry consultant.

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