Telcos tariff hike to spur inflation
NEW DELHI: Last month, all the major Indian telcos — Bharti Airtel, Reliance Jio and Vodafone Idea — hiked their prepaid tariffs by 20% to 25%, raising fear of higher prices and inflation. Among them Airtel was the first one to hike, followed by the other two telecom giants, Vodafone Idea and Reliance Jio. While announcing the hikes, these telecom operators cited that the new plans would improve their average revenue per users (ARPU) and help them deal with the financial stress faced by the industry.
Their decision was immediately hailed by the industry experts, calling it a much-needed step to aid the ailing sector. The industry leaders said the decision will enable the telecom industry to invest in rolling out 5G mobile services.
“Telecom is a capital-intensive sector, because it requires continuous technological upgradation. The key players had already invested Rs 5 lakh crore between fiscals 2017 and 2021 to roll out 4G services,” said rating agency CRISIL.
However, this was a view from industry’s perspective but what about the consumers? Won’t they suffer from this price hike at the time of a pandemic? The industry claims that it has hiked only 20-25 % but it is bound to impact the people with low income.
Telecom services: A necessity
As per the latest data, India has 1.18 billion mobile connections, 700 million internet users, and 600 million smartphones. The smartphone users are increasing by 25 million per quarter. Among them — Reliance Jio, Vodafone Idea and Airtel have captured 85% of the telecom market.
According to a PwC report, the pandemic has driven demand for internet access. “Be it for work, education or entertainment, people from all walks of life are now highly dependent on the internet. Therefore, the price rise by these private telecoms, within a week, is not a good sign as it paves the way for future hikes,” says the report, adding that the move will also increase inflation.
“The latest Situation Assessment Survey (SAS) published by the National Statistical Office (NSO) on September 10, 2021, reveals that an Indian farmer earned Rs 27 per day on average from cultivation in 2018-19. Hitting them with 25% hike will lead to their digital exclusion, instead of inclusion aimed by the government,” said Telecom Watchdog, an NGO.
The NGO also said during Covid, people are highly dependent on the mobile phone for services such as health, education and finance. But now, with such a steep hike, they will be left with no option but to give up some of these services.
Higher prices for telecom services would add to the inflationary pressure the country is facing. In a report titled “India: Low inflation coming to an end”, Nomura’s Managing Director and Chief economist, India and Asia (ex-Japan), Sonal Varma, points out higher telecom tariffs for building inflationary pressure. “Telecom firms have raised their prepaid tariffs (by ~20%) to strengthen their balance sheets and there is a risk of higher broadband charges.
Consumer companies have either announced a price hike (FMCG) or are looking to hike prices (autos) from January to rebuild their margins... the ongoing reopening will continue to add to services price inflation, and elevated inflation expectations remain a risk for the medium-term outlook,” she says.
Necessary Evil?
While hiking the prepaid tariff, the mobile companies said their purpose is to improve their Average Revenue Per Users. Bharti Airtel said this level of ARPU will enable the substantial investments required in networks and spectrum. Vodafone Idea said this will start the process of ARPU improvement and help address the financial stress faced by the industry.
In a recently concluded India Mobile Congress, Reliance Chairman Mukesh Ambani advocated migration of people from 2G to 4G to 5G at the earliest; keeping millions of Indians confined to 2G is to deprive them of the benefits of the digital revolution. Overall, one can notice all these telecom giants justified their tariff revision in some way or other.
“Tariff hike plea has become a trend to hide their own failures. So far, since the launch of service by Jio in September 2016, there have been three tariff hikes. As a result, the mobile ARPU per month has gone up from the lowest level of Rs 67.38 (Jul-Sep 2018) to Rs 104.66 (Apr-Jun 2021). It was Rs 126.05 in Apr-Jun 2016. The telcos are aiming ARPU to be Rs 200, much higher than what it was before the entry of Reliance Jio in September 2016. All the private telcos have cartelised and are enjoying high tariffs at the cost of consumers,” the NGO Telecom Watchdog.
Telcos justified their hike claiming that they have to spend a massive sum of money to get approvals, build infrastructure and expand networks for millions of people living in India. For all these, they require a lot of funds. However, a report by ICICI Securities suggests the telecom operators should have taken a steeper hike in 4G data plans while maintaining the affordability of 2G mobile services. The significant hike in base 2G plans could lead to some slippage of subscribers. “Bharti and VIL have taken their highest hikes in the base 2G pack, which would make telecom service less affordable (on the other hand, the heavily discounted category of unlimited 4G data plans has seen a relatively lower price increase),” reads the report of ICICI Securities.
Only time will tell how the move to hike tariffs impacts the telecom companies in the long run, but it certainly would come at the cost of digital inclusion of the government. We have sent the questions to these companies but they have remained unanswered.