Industry
Phone tariff hikes: Is this the end of cheap data?
Summary
- Telecom companies raised tariffs after two years, primarily to boost their average revenue per user (Arpu), crucial for profitability, and for sustaining investments in network technology, spectrum and 5G deployments.
Last week, India’s leading telecom companies Reliance Jio, Bharti Airtel and Vodafone Idea raised tariffs across voice and data plans. This is the third hike since 2019 and was not entirely unexpected. Mint explains what’s in it for consumers:
By how much will mobile bills go up?
Average tariff hikes for all plans range from 10% to 25%, which means customers will pay as much as ₹50 more per month. For 5G data, specifically, the minimum threshold for availing unlimited data has been raised to plans that offer 2GB data per day starting from ₹349 a month. Earlier, this threshold was 1.5GB data per day that used to cost ₹239 a month. This is 46% higher monthly outgo for subscribers using these plans. While Jio and Vodafone Idea haven’t increased tariffs for voice-only plans, Airtel has. Therefore, some of Airtel’s users may face higher charges for these plans.
Read more: Indians to spend an extra ₹47,500 crore post-Jio, Airtel, and Vodafone tariff hikes: Report
Why did telcos enforce a tariff hike?
Telecom companies raised tariffs after two years, primarily to boost their average revenue per user (Arpu), crucial for profitability, and for sustaining investments in network technology, spectrum and 5G deployments. The need for higher Arpus is emphasized by Airtel and Vi for financial sustainability and to improve their return on capital. Airtel CEO Gopal Vittal has said the industry’s return on capital employed, at 9.5%, is poor. With substantial investments in buying spectrum and upgrading infrastructure for enabling 5G services, the hikes became necessary to support future growth.
Will tariff hikes benefit investors?
Aggressive discounts are out, and pricing power has returned. This may improve telcos’ financial health. Investors, too, may get better returns. It will also support stock performance, as seen with the recent rally in telecom stocks over the past year. For instance, Airtel’s stock rose more than 71% over last year versus Nifty 50’s 28% gain, as per BNP Paribas.
Read more: Vi gets fewer consumer complaints, aims to bolster customer retention
What does it mean for consumption?
India will still continue to have one of the lowest data tariffs globally. In the US, for instance, the average cost of 1GB is $5.37 versus $0.16 here. These low prices have been a big factor in driving internet penetration, digital inclusion and financial inclusion in India. However, the recent hikes are a negative for demand recovery of consumer companies, particularly staples companies, analysts have said. That’s because consumption at the lower end of the economic pyramid may be impacted if there is any shift in the wallet share.
What can we expect, going ahead?
Sector watchers expect another tariff hike in FY2026-27, which could be of a similar scale as this time. This is because Bharti Airtel’s chairman Sunil Mittal has been pushing for industry Arpu to rise to ₹300 a month, up from present levels of ₹162- ₹206, which can only happen if tariffs are revised upwards. Telcos also feel that the hikes can be absorbed by consumers, but they will time it right so that customers don’t shift to rivals or let go of the multiple SIMs they use, also known as ‘SIM consolidation’.
