Saturday, 20 Jul, 2024
Economy 28-Jun, 2024

Tariff Hike: Airtel & Jio Pass on Spectrum Costs to Consumers

By: Damini Mehta

Tariff Hike: Airtel & Jio Pass on Spectrum Costs to Consumers

Source: Freepik

Reliance Jio, known for its aggressive pricing strategies, increased tariffs ranging from 12 to 25%. Bharti Airtel followed suit and announced a hike ranging between 11% to 21% across various voice and data plans.

In recent developments, India's leading telecom operators, Bharti Airtel and Reliance Jio, have implemented significant tariff hikes within hours of each other, marking a notable shift in the pricing landscape. This move is seen as an inevitable response to the pressing need for improving average revenue per user (ARPU), a critical metric for the telecom industry. The latest round of hikes follows a series of adjustments in recent years, aimed at stabilizing the financial health of these companies amidst rising operational costs and spectrum acquisition expenses.

Reliance Jio, known for its aggressive pricing strategies that disrupted the market dynamics a few years ago, increased its tariff across segments ranging from 12 to 25% with the steepest hike in its more premium plans. Bharti Airtel followed suit and announced a hike ranging between 11% to 21% across various voice and data plans. This adjustment is particularly significant as it underscores the company's strategy to enhance its ARPU, which is crucial for sustaining network investments and improving service quality. The new prices will come into effect from July 3 for both of them. Vodafone Idea, the largest market holder at the moment is yet to announce its tariff hikes but is likely to follow soon enough. Interestingly, industry analysts were already predicting a tariff hike post the Lok Sabha elections, the result of which came out on 4th June.

Need for a hike

The impetus for these increases can be traced back to the substantial investments made by telecom operators in spectrum acquisitions. The most recent spectrum auction saw the industry shell out huge stones of money to secure the necessary bandwidth to support the burgeoning demand for data services. Bharti Airtel and Reliance Jio, the two dominant players, have been at the forefront of these acquisitions, striving to maintain their competitive edge and ensure network robustness. This heavy investment burden has inevitably been transferred to consumers through incremental tariff adjustments. However, the most recent round of spectrum allocations did not reflect much enthusiasm from major players. The auction generated Rs 11,340.8 crore for the government accounting for merely 1.34% of the available spectrum being sold. Bharti Airtel won bids worth Rs 6,856 crore, acquiring 97 MHz of spectrum.

Historically, tariff hikes in the Indian telecom sector have been a recurring theme, albeit spaced out over several years. The previous significant hike occurred in 2019, when major operators increased tariffs by 15-40% to offset the financial stress caused by intense competition and regulatory challenges. This was followed by another round of hikes in 2021, further solidifying the upward trajectory of telecom tariffs in India. These increments, though necessary for the sustainability of the operators, have often been met with mixed reactions from consumers who are accustomed to low-cost telecom services.

Three Giants Dominate 

The telecom market in India is predominantly controlled by three major players: Reliance Jio, Bharti Airtel, and Vodafone Idea. Reliance Jio, with its innovative and cost-effective offerings, holds the largest market share at 39.7%, followed by Bharti Airtel at 33%, which has consistently focused on premium service quality and customer experience. Vodafone Idea, despite facing significant financial challenges, remains a key player, albeit with a smaller market share compared to the other two giants at 19.3%. This oligopolistic market structure means that pricing decisions by any one player often lead to similar actions by the others, thereby influencing the entire market. Interestingly both, Reliance Jio and Bharti Airtel have gained market shares at the expense of Vodafone Idea as shown by charts.

The recent tariff hikes are expected to have a notable impact on the industry's financial metrics. Analysts predict a substantial improvement in Average Revenue Per User (ARPU), which had been stagnating in recent years. For instance, Bharti Airtel's ARPU stood at ₹208 (quarter ended March 2023), and the latest hikes are expected to push this figure significantly higher to ₹286 by end of FY27. Similarly, Reliance Jio, which reported an ARPU of ₹181 in the same period, anticipates a considerable boost from the revised tariffs. Vodafone Idea’s (Vi’s) ARPU stood at Rs 146 in March 2023. 

Balancing Revenues with Financial Viability

These developments highlight a critical phase in the Indian telecom sector, where operators are balancing the need for financial viability with the imperative of maintaining affordability for consumers. The increased tariffs, while potentially burdensome for some users, are seen as a necessary step to ensure the long-term sustainability and quality of telecom services in India. As the industry navigates these changes, the focus remains on enhancing network infrastructure, expanding service coverage, and improving overall user experience.

In conclusion, the recent tariff hikes by Bharti Airtel and Reliance Jio are indicative of the broader challenges and strategic adjustments within the Indian telecom sector. With substantial investments in spectrum and the continuous push for higher ARPU, these hikes reflect the operators' efforts to maintain financial health while striving to meet the growing demand for high-quality telecom services. As the market continues to evolve, these changes will play a crucial role in shaping the future landscape of telecommunications in India.