It will now cost just ₹50 more for some Vodafone Idea (Vi) post-paid subscribers to buy a family pack. News reports suggest that the telco has increased the price of two of its premium post-paid packs in Uttar Pradesh and some other circles, without making any announcement about the move. On the face of it, this seems like a negligible increase in tariff by Vi, the laggard in a fiercely competitive telecom market. And this quantum of hike doesn’t even affect the volume segment, the pre-paid consumers.
But in the innocuousness of this tariff hike lies its potential. This move signals that Vi has bitten the bullet on tariff hikes despite the other two telecom operators shying away from the move. And by hiking tariff for a rather small bunch of subscribers, Vi has shown it is testing the market’s appetite for a further and more broad-based increase in tariff. The telco has signalled to competition that it is not averse to stick its neck out in the desperate race for survival.
Will the first round of tariff hikes by the weakest operator in the business lead to subscribers switching to Bharti Airtel or Reliance Jio Infocomm (RJio)? Porting from one network to another remains a long and slow process in India and anyway, all operators could well join the tariff hike bandwagon later. For Vi, hiking tariff is critical for its very survival even though a massive subscriber churn means despite tariff hikes, its gross revenue has been slipping.
Latest data from telecom regulator TRAI show that for the September quarter, Vi’s Adjusted Gross Revenue (including revenue from national long distance), fell by nearly 3% despite previous tariff hike which was effective December 2019. So at the end of the quarter, its AGR market share had declined to 21.3%. RJio held nearly 40% of the market, Bharti nearly 30%. Vi’s AGR market share dipped in a quarter when the industry AGR grew by 3.2% year-on-year. Unsurprisingly, VIL has been earning the least per subscriber among the top three telcos. In the same September quarter, Vi’s average revenue per user (ARPU) was just ₹119 against RJio’s ₹145 and Bharti’s ₹162. And the other two operators registered more than 30% growth in AGR each!
Analysts at brokerage ICICI Securities pointed out that Vi registered good growth in B circles (more than 18% year-on-year) and the worst hurt were the metro circles where the decline was a whopping 27%; AGR in A circles was also down 2.1%. India’s telecom market is divided into 22 telecom circles; metro circles have the most dense population followed by A, B and C circles.
In the first six months of this fiscal year, Vi has seen its AGR fall the most in the Delhi circle, by nearly 50%. Bharti’s fell by nearly 5% and it is evident that the loss of these two incumbent operators was RJio’s gain, since RJio’s AGR market share improved by nearly 42% in the Delhi circle.
These dismal revenue and ARPU statistics underline the need for Vi to hike tariffs without waiting for the competition to make a move. In any case, India is a vast telecom market which has almost always had rock bottom tariffs. And very cheap rates have riled the industry time and again.
Earlier, Bharti Chairman Sunil Mittal had described the prevalent data tariff – ₹16 or 10 cents per GB – as a “tragedy”. And CEO Gopal Vittal said in the telco’s post-earnings conference call recently that the industry ARPU was extremely low for the amount of allowances provided for the sum.
“At ₹160 odd if you can get as much data as you need, unlimited calling and some content that is really an extremely low level of pricing. So, we do believe that ARPU as we said must go to ₹200 and finally to ₹300, but it is a question really of not whether customers can afford to pay because many customers at the upper end of the spectrum can certainly afford to pay a lot more but the question is the competitive dynamic and the competitive readiness to take a tariff increase… I can tell you that at these levels of tariff, it is not a sustainable situation from a long term as far as the industry is concerned. So somebody will have to lead it. We are already at a premium. In fact, we have signalled that we want tariffs to go up therefore we will be happy to follow the same day if tariffs were to go up further.”
So will Bharti follow Vi and raise tariffs, even if only for premium post-paid plans? Questions remain about what the two remaining telcos will do, with RJio maintaining a studied silence on the issue. As for Vi, it is already in talks with several potential investors for a large dose of equity infusion as it looks to remain operational and also have the money to service the huge obligation towards the past dues it must pay to the government according to a pre-determined deadline. Analysts at brokerage Goldman Sachs had noted earlier Vi’s earnings are nowhere near enough to meet these payment obligations, beginning 2022. The next few weeks will make it clear if the competition will follow Vi’s lead and whether the hikes will percolate down to the small, pre-paid plans as well.