With tariffs likely to go up, turmoil in Indian telecom could soon ease

The turmoil in the telecom sector seems to be easing with prices remaining largely stable for the past three quarters and some industry executives and experts seeing tariffs edging up in the next two quarters. That could end more than two years of rockbottom prices for Indian telecom consumers.

While there could be some tinkering with rates in the next two quarters to test market reaction, noticeable pricing power may return only after six months, executives said. But the key to that remains Reliance Jio Infocomm, which has kept prices largely stable since January.

Jio’s pricing aggression since its entry in September 2016 forced incumbents to match rates to retain customers, galvanising consumption of voice and data services.

Subscribers benefited but India’s older mobile phone companies were hurt. Smaller carriers that couldn’t withstand the brutal price war exited and the industry consolidated down to three large private players — Vodafone Idea and Bharti Airtel among the older ones and Jio – making it an ideal market situation for pricing power to return over time, analysts said.

Vodafone Idea, Bharti Airtel and Jio didn’t respond to queries.

A weak rupee and rising bond yields have increased the cost of money, adding to the burden of telcos, particularly the financially stressed older carriers.

“The days of freebies for mobile consumers may be finally coming to an end as the high cost of money is definitely hurting telcos and putting pressure, particularly on the incumbents, which should lead to some tariff hikes in the next two quarters,” Sanjiv Bhasin, executive vice-president, markets and corporate affairs, IIFL, told ET.

Any uptick on the pricing front should be “post-April 2019,” he said.

Since most tariff packs in the post-Jio era are bundled offers, telcos could recast slow-moving ones to induce customers to upgrade to a higher-value deal to get the same amount of data and free voice calls, said Bhasin. He added that a telco could also “selectively ring in modest increases in monthly rentals of some bundled packs” to boost overall revenue.

Some could also reintroduce separate voice and data plans.

The lack of tariff cuts for several months suggests “Jio could remove discounts and promotions going forward, which will likely be adopted by incumbents,” said Nitin Soni, director, corporates, at global rating agency Fitch.

The last disruptive tariff cuts were in January this year when Jio rolled out the sector’s lowestpriced plan, offering JioPhone users free voice for life with one GB of data at 4G speeds over a 28-day span for Rs 49 a month. Soni added that the 2.4% sequential growth in adjusted gross revenue (AGR) for the April-June period signalled that “sector recovery has started and blended ARPU (average revenue per user) has limited room to fall further on a stable to improving data tariff.”

Some are sceptical, saying it could be a temporary lull and that much depends on Jio’s new subscriber addition plans.

There’s no doubt that operators need to raise prices to make investments to improve quality of service amid a surge in voice and data usage, said Rajan Mathews, director general of the Cellular Operators Association of India (COAI), which represents all major telcos.

“But competitive pressures are likely to keep tariff rates about where they are today for the next two-to-three quarters, and recouping revenue would remain a challenge for operators amid surging consumption, higher diesel costs and a weaker rupee,” he said.

Ex-Bharti Airtel CEO Sanjay Kapoor said Jio’s stable pricing doesn’t mean it may not disrupt the market.

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