'Tariff hikes, relief package to help telcos invest up to Rs 1.8 trn in 5G'

Improving bottomline along with the moratorium on government dues will provide telecom companies room to invest an estimated Rs 1.5-1.8 trn for 5G services, say Crisil

The announced tariff hikes by the telcos could boost their operating profits by at least 40 per cent and coupled with the moratorium on government dues, will help them invest more aggressively into 5G technology, says a report.

Tariff hikes to lift the EBITDA, or earnings before interest, taxes, depreciation, and amortization, of telcos by 40 per cent and along with the moratorium on government dues, this will support 5G investments and credit profiles, Crisil said in a note on Tuesday.

Airtel and Vodafone Idea have announced up to 25 per cent hike in their prepaid plans tariffs to improve financials, While Reliance Jio has announced up to 21 per cent hike in mobile services tariffs from December 1.

The agency sees an estimated 20 per cent improvement in the Average Revenue Per Unit (ARPU) of the telcos, driven by the twin tailwinds of recent tariff hikes and ongoing customer upgrades, and expects this to lift their operating profit to Rs 1 lakh crore in fiscal 2023.

Improving bottomline along with the moratorium on government dues will provide telecom companies room to invest an estimated Rs 1.5-1.8 lakh crore for 5G services over the current and next fiscal years, apart from improving their return on capital employed, it said.

Moreover, the tariff hikes will also support their credit profile notwithstanding higher investments, it added.

The tariff hikes and ongoing customer upgrades can push the sectoral ARPU by 20 per cent to Rs 160-165 next fiscal from Rs 135 last fiscal.

ARPU growth will lead to non-linear growth in profitability due to the high operating leverage.

The tariff hike will lift the sector's operating by 40 per cent to Rs 1 lakh crore next fiscal from Rs 72,000 crore in fiscal 2021, the agency said. Yet, the return on capital employed will be moderate at 7-8 per cent because of high capital intensity and adjusted gross revenue dues, it added.

Airtel and Vodafone Idea have announced up to 25 per cent hike in their prepaid plans tariffs to improve financials, While Reliance Jio has announced up to 21 per cent hike in mobile services tariffs from December 1.