Bharti Airtel & Vi: Why Telecom tariffs are rising

Bharti Airtel and Vodafone Idea (Vi)’s recent move to hike base postpaid plans tariffs for corporate users and base postpaid rates is a clear bid to boost average revenue per user (ARPU). Over the next five to six months, both are likely to target another round of hikes. Analysts, though, say the next round of hikes in the 4G postpaid user segment won’t be easy as Reliance Jio is still after customers.

What has Airtel, Vi done so far on tariffs?

• July 22: Airtel dumps Rs 199, Rs 249 corporate tariff packs; plans now start at Rs 299/month. Also drops Rs 749 family postpaid plan; pushes retail users to upgrade to Rs 999 plan with more data
• July 26: Vi makes Rs 299 base postpaid corporate plan, cuts data chunks on ‘Business Plus’ postpaid offers
• July: 28: Airtel scraps entry-level Rs 49 prepaid plan, base plan now 61% costlier at Rs 79; prepaid user base nearly 95% of overall
• Vi follows in some markets, to expand plan nationally; prepaid user base over 92% of overall.

Why have they done this?

• Airtel, Vi want higher ARPUs; Adjusted Gross Revenue (AGR)/spectrum payments coming up
• Loss-making Vi’s fundraise stuck, needs urgent cash-flow boost. Else, may go bankrupt

Potential impact on Airtel/Vi’s finances?

• Corporate postpaid rate hikes to boost Airtel ARPU by 1-2%; ARPU in Jan-Mar quarter: Airtel – Rs 145; Vi – Rs 107
• Prepaid plan changes to drive 3%/6% incremental wireless revenue/Ebitda
• A Rs 50-100 hike in corporate postpaid rates trigger 1% gains to Airtel/Vi’s overall mobile revenue

What are Airtel/Vi likely to do on tariffs in the next six months?

• Airtel, Vi may hike prepaid smartphone user tariffs before end of 2021
• Prepaid smartphone users generate 50-80% of telcos’ revenues
• Challenge: Jio still after user adds; readying to launch Google-partnered budget 4G smartphone

The Jio impact:

• Airtel unlikely to suffer big customer churn as Rs 79 base featurephone pricing akin to JioPhone’s Rs 75 starter pack for JioPhone
• Vi likely more vulnerable as 4G coverage weaker than Airtel/Jio
• Users wanting to go Jio would need 4G handsets, may limit material user churn
• Jio may hike prepaid smartphone rates as well; both Jio/Airtel likely to gain market share from Vi whose incremental cash flows from rate hikes to be channelled for repayment of regulatory dues, not network capex

Every Rs 10 incremental monthly ARPU to translate in $400 million/$320 million/$500 million incremental annual Ebitda for Airtel/Vi/Jio