Wary of churn, telcos want to get users hooked onto 5G before hiking tariffs

• Reliance Jio and Bharti Airtel are waiting it out and getting their users hooked onto 5G before hiking tariffs.
  
• Elevated subscriber churn has also acted as a barrier against tariff hikes, according to analysts.
  
• Enhancing 5G utilization also lets Jio and Airtel grab market share from Vodafone Idea, which is yet to launch its 5G services.
  

There is a broad consensus amongst both telecom companies’ management and analysts that the sector needs another round of tariff hikes, but telcos seem shy of blinking first this time around amidst a rise in subscriber churn.

While analysts have noted multiple times that tariff hikes are imminent, telecom companies are yet to bite the bullet. Bharti Airtel, the second largest telco, had said in Q2 that there is a “need for tariff correction”, while Vodafone Idea said during its Q1 investor call that a tariff hike is necessary before the end of 2022.

Curiously enough, neither telco touched upon tariff hikes in their respective Q3 earnings. Global brokerage Jefferies had noted that it expects Bharti Airtel and Reliance Jio to hike tariffs by 10% each in Q4 of FY23, FY24 and FY25.

So far, however, tariff hikes have not materialized and telcos don’t seem to be in any major rush going by the lack of commentary in this regard in their latest earning calls.

Telcos want to get users hooked onto 5G

The high cost associated with the acquisition of 5G spectrum and the rollout of 5G services means that tariff hikes remain a key trigger for telecom companies.

However, for now, Airtel and Jio are focusing on expanding the availability of their 5G networks and getting users hooked onto the higher data speeds before hiking tariffs.

According to the analysts Jefferies, Jio and Airtel are also grabbing market share at the expense of Vodafone Idea, which is struggling to roll out its 5G services due to a fund crunch.

“We believe there is greater uncertainty on tariff hikes in the near term given that large capacity creation with 5G will shift focus on boosting utilization. Moreover, focus on market share will rise amidst moderating data subscriber growth and Vodafone Idea’s worsening situation,” said a Jefferies report.

Telcos are also wary of the elevated subscriber churn, and a tariff hike at this point could worsen it.

“We are not baking in any tariff hikes at all in the calendar year 2023. We believe it will be difficult for operators to do another 20% hike, as subscribers found it difficult to absorb the last 20% hikes, leading to heightened churn,” JP Morgan said in a note.

However, analysts at Jefferies were relatively less bearish on the prospect of tariff hikes, saying that we could see one round of hikes by March 2023. Going forward, the brokerage believes that telcos could resort to hiking 4G tariffs and driving up usage of 5G services by offering larger data bundles at a lower cost per GB.

“While 5G is unlikely to drive up ARPUs without tariff hikes, it will help Bharti Airtel and Reliance Jio gain market share from Vodafone Idea," JP Morgan added.

For context, Reliance Jio’s 5G services are available in 277 cities across the country, while Airtel’s 5G services are available in 133 cities. Vodafone Idea, on the other hand, is yet to officially roll out its 5G services.

Going forward, the direction telcos choose in monetising 5G will be key in determining the timing and quantum of tariff hikes.

Lack of tariff hikes results in marginal uptick in ARPU

The lack of tariff hikes has also resulted in only a marginal uptick in the average revenue per user (ARPU) of the three telcos.

While Jio’s ARPU increased 1.8% sequentially, Vodafone Idea reported a 3% increase. Airtel, on the other hand, reported a 1.6% increase due to premiumisation.

The increase in 4G usage also helped Jio and Airtel post a moderate uptick in their revenue – while Jio’s revenue increased marginally by 2.4% sequentially in Q3, Airtel reported a 3.7% topline growth.

According to the analysts at JM Financial, this revenue uptick was due to an increase in 4G subscribers – while Jio’s subscriber base grew by 4.55 million, Airtel reported an increase of 3.39 million during the December quarter.

Vodafone Idea, on the other hand, reported a decline of 7.81 million subscribers during this period. However, the analysts at Jefferies believe that the government picking up a 33% stake in Vodafone Idea has improved the outlook for tariff hikes in the longer term.

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