Telcos expect ARPU to more than double by 2021; steep hike in bills likely

It’s time for telecom subscribers to brace for a steep hike in tariffs because telecom firms expect the average revenue per user (ARPU) to more than double by next year.

Rajan Mathews, director general of the Cellular Operators Association of India, said: “We had indicated that tariffs must go to generate at least ARPUs of Rs 200 (per month) by the end of 2020 and Rs 300 by 2021. The tariff increase might reduce usage of customers but not likely impact their number.”

The ARPU increase of around 77 per cent (from an average ARPU of around Rs 113 in March last year) would help in increasing the profit after tax (PAT) margins to go positive to around 10 per cent from a negative of 18 per cent in March FY19, say telcos.

That assumes constant costs as well as subscriber numbers and no change in data usage. Based on the same premise at Rs 300 ARPU the industry could make a 30-40 per cent margin on PAT over revenue, they say. However, the actual margins will be lower because companies have to make investments.
 

Telcos hiked tariffs by up to 40 per cent late last year. And if the public pronouncements by Bharti Airtel are anything to go by, the telco has told analysts it is expecting ARPUs to go up to Rs 200 in the next few quarters the same level as it was before Jio started operations and a price war began, and go up to the levels of Rs 300 over time.

Clearly with the financial stress of telcos getting aggravated with the large imposts that they have to fork out due to the AGR order immediately, much of the bill will have be passed on to customers.

However, sources who follow Reliance Jio say it could again upset the others’ apple cart. If Vodafone Idea closes operations Jio might concentrate on reaching its stated target of reaching 500 million customers (it will reach 646 million with 50 per cent of Vodafone Idea customers) quickly rather than going in for a tariff hike. It would help them in reducing cost of delivering data and voice as the investment on network and spectrum will be amortised across larger number of subscribers. That itself will improve margins. 

But of course it could strain quality of service and lead to further requirement of capital investment. A report by Motilal Oswal also points out that if the subscriber share of Vodafone Idea is distributed half and half between Jio and Airtel will see their Ebitda increase by 24 per cent and 28 per cent respectively by FY22.

It points out that Airtel will be able to get in case of a duopoly an incremental Rs 100 billion EBITDA assuming it gets 40 per cent revenue share and 50 per cent EBITDA margin. Thus it can garner Rs 550 billion of EBITDA in FY22 without factoring any increase in ARPU.