Telecom industry needs tariff hikes at regular intervals: Vodafone Idea

VIL recently said that another tariff hike is possible before the end of 2022 as it looks for a margin boost to improve its liquidity.

The struggling telecom operator said per user revenue remains lower than historic trends.

All three private telecom operators including Reliance Jio, Bharti Airtel and VIL have hiked charges for data, arresting average revenue per user (ARPU) declines.

Despite this, “the industry still operates on unsustainably low tariffs”, VIL said in its latest annual report.

The report added, “India continues to have the lowest tariffs globally, while the proliferation of unlimited data bundles have led to India having one of the highest data usage (per subscriber) in the world.”

The ARPU levels remain lower in comparison to historic trends, despite consumers getting much more value in terms of unlimited voice and daily data allowances, compared to five years ago.

“The company thus believes that the industry will have to further raise tariffs at regular intervals, which is essential for operators to generate reasonable returns on their employed capital and support future investments, including new technologies,” the firm said.

The joint venture of Aditya Birla Group and Vodafone Group had in 2021 got a fresh lifeline after the government extended a relief package to the sector.

VIL’s subscriber base

Vodafone Idea had 24.38 crore subscribers as of 31 March, 2022, of which 11.81 crore were 4G users.

The debt-ridden telecom firm said while the Supreme Court allowed past statutory dues to be paid in 10 years, the government announced a relief package for the industry in September last year to address liquidity challenges facing the telecom sector.

After this, “the Company has started to witness improvement in various operating KPIs including leading the league tables of Voice and Data experiences it offers to the customers. The pace of subscriber base decline has also reduced to some extent,” it said.

At present, the firm is in discussion with lenders and investors to get the requisite equity and/or debt funding which will enable it to restart the capex cycle and move towards the growth journey in line with its long-term strategic intent.

On spectrum auctions

VIL recently acquired 5G spectrum in its priority circles covering 98% of its revenue base, which will strengthen its competitive position.

“The consolidation of the industry to three large private operators and one government operator positions the surviving operators well to benefit from the growth opportunities on the back of India’s digitalization trend,” it said.

The overall tele-density for India as of March this year came in at 83.1%, proposing there is still a proportion of population, which is yet to start using mobility services.

This holds true especially for rural areas where tele-density is still low at 57.9%, which remains a significant opportunity for the telecom operators in India.

“The company is taking appropriate steps to grow its revenues further and thus reduce losses/earn profits by following a well-defined strategy,” the annual report said.

VIL said its priority remains on driving ARPU improvement.

“During the year, company has taken several tariff interventions specifically, effective November 25, 2021, company increased the prepaid tariffs across all price points including unlimited plans as well as combo vouchers. All these initiatives are ARPU accretive, benefits of which are reflected in ARPU improvement from 107 in Q4 FY21 to 124 in Q2FY22.”

“While all these tariff interventions are steps in the right directions and will help in improving the ARPU, however such changes are not enough material to solve the structural issue that the industry is facing,” it said.

Tariff hike remains critical

Tariff hike remains critical to revive the sector and pricing structure has to change where operators have the ability to charge customers for incremental usage, the company added. India has amongst the lowest ARPUs in the world despite having one of the highest data usage per subscriber.

The telco said it believes the market will be able to absorb further tariff hikes, which is essential for operators to generate reasonable returns on their employed capital and support future investments.

“While tariff hike remains critical to improve the overall industry health, company has undertaken several market initiatives to improve ARPU…,” it said.

“As a part of customer excellence drive, company continues to aggressively focus on digitalization of customer servicing as well as acquisition across all touch points with a clear focus towards shift to digital.”

The firm now has digital acquisition across major cities in India, for both prepaid and postpaid customers, including same day doorstep delivery and digital KYC processes, serviced through its dedicated delivery partners as well as their own stores.

Meanwhile, Vodafone Idea reported a consolidated loss of 7,296.7 crore in the April-June quarter as compared to 7,319 crore in the corresponding quarter last year.

The telecom major’s revenue from operations came in at 10,410 crore, up 13.7% YoY as against 9,152 crore in Q1FY22.

With agency inputs

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