A rational call

Tariff revision can enable telcos to spend on infrastructure

The commentary after the recent Reliance Industries quarterly earnings has brought the focus back on the need for rationalising telecom tariffs in India. The immediate trigger is the rising customer base of Reliance Jio but flat monthly average revenue per user (Arpu). The company reported an Arpu of Rs 181.70 in the third quarter, the same as in the previous quarter, and slightly up from the Rs 178.20 in the same quarter last year. In the telecom industry, Arpu is like a currency that captures the health of a telco. Multiple analysts’ reports have rightly pointed out that telcos must monetise their pan-Indian 5G services through tariff hikes for a stronger business performance. They have also highlighted delayed tariff hikes in the industry as a downside risk for the sector. Their projection of a significant tariff hike ranging from 10 to 20 per cent in 2024-25 could mean Jio’s monthly Arpu going beyond Rs 200. That’s a welcome pointer for the sector. If Jio, which is the industry leader with the highest number of mobile subscribers, raises tariffs, others are bound to follow.

Over the past couple of years, there have only been marginal hikes in telcos’ charges in the country, keeping the phone bill low for the users. Even as consumers have no reason to complain on the mobile tariff front, they are losing out on quality. Call drops and poor signal have affected the quality of mobile telephony, prompting a large majority of phone users to opt for WhatsApp calls. Tariff revision should enable telcos to spend more on better infrastructure and indoor solutions so that users get satisfactory services without having to go to alternative platforms to make a call. This will also help the industry offer 5G services, which are robust and efficient. Besides, the telecom industry, which has faced substantial financial stress and still runs the risk of becoming a duopoly, needs to regain health and be a bulwark for the digital powerhouse that India aims to become in the near to medium term.

Further, for flagship schemes of the government such as Digital India to succeed, telcos must provide the right impetus and connectivity. For that, the return on capital has to improve and losses have to be contained. Leading telcos have spent around Rs 1 trillion each in the last two years on various things, including 5G spectrum. Among the telcos, only Bharti Airtel’s Arpu crossed the Rs 200 barrier recently. All others are below that level. The numbers in India are a fraction of the Arpus of international telecom firms. The Indian telecom industry combines many unique aspects — it has among the cheapest providers of services in the world and a national teledensity of about 85 per cent, and with room to grow. And it’s predominantly a prepaid market. The country’s mobile telephony sector, which showed much promise, has witnessed many upsets through the years — the biggest being the cancellation of numerous telecom licences in 2012 following the alleged 2G scam.

For the telecom industry to regain its place in the India growth story, it is important that tariffs are set rationally, and that will allow firms to make necessary investments in this capital-intensive business to constantly move ahead on the technology curve and improve services for consumers. The expectation is that telecom tariffs will increase after the Lok Sabha elections.