Guru Gyan
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Guru Gyan

For The Sustainability Of The Telco Industry

The telecom industry is struggling and that is not something new. With the AGR payments and the arrival of Jio, telecom firms such as Bharti Airtel and Vodafone Idea have been having a difficult time for a while. This is why we sort of agree to a couple of points that have been put across by Sunil Mittal, the Chairman of Bharti Airtel.

And Then There Were Two

In an interview to CNBC-TV18, Mittal said, the telecom sector could be reduced to two companies. We believe that these two companies could be Jio and Airtel. He added, as quoted by CNBC-TV18, “unless promoters of the third company decide to bring in large amounts of capital, sustainability will be in difficulty”. He could be talking about Vodafone Idea as the third company here because it is also a financially stressed telco.

In late July, Mittal asked for the government’s support for the telecom sector, saying that the industry is barely able to cover the cost of capital. He added that the sector needs much more support to repair the deep damage to its finances and make it viable for telecom operators to invest in future technologies. He is not wrong here because both Airtel and Voda Idea are paying massive amounts as AGR payments.

For Bharti Airtel, the total AGR demand stood at ₹43,980 crore. Of the total amount, Airtel has paid ₹18,004 crore until now. The company is asking for a 15-year timeline to pay the remaining amount. Meanwhile, Vodafone Idea’s total AGR demand came in at ₹58,254 crore, of which, the firm has paid ₹7,854 crore. Voda Idea is also asking for at least a 15-year timeline to pay the remaining amount.

According to Mittal, these payments are sucked out of the industry and these would rather go into building the 4G, 5G network.

Tariff Hikes

Mittal also asked his subscribers to ‘prepare to pay a lot more’ and this could mean only one thing — Airtel will soon increase the prices of its plans. He added that an Average Revenue Per User (ARPU) of around ₹150 for 16GB is not sustainable for the companies. He is anticipating Airtel’s ARPU to exceed 200 in the next six months

With people spending more time online, consuming content, then they need to be able to pay accordingly, he stated. This sounds like a valid point. If you are spending more time online, utilising more data, then you should pay for that extra usage of data. This sounds good on paper but if this is implemented, what can happen?

The Possible Impact

The major thing that would happen because of the tariff hike is that Airtel may lose more subscribers. Mittal himself said that India is a price-sensitive market and what other proof is there than the enormous amount of success of Reliance Jio in India. Despite Airtel and Voda Idea reducing their rates to the levels of Jio’s rates, they are still failing to replicate the success of Jio.

And the proof is in the pudding. According to the latest subscription data from TRAI, which was released in the last week of July, showed that Reliance Jio added 15.7 lakh users in April. However, Bharti Airtel witnessed the biggest decline in user base at 52 lakh and Vodafone Idea also lost 45 lakh users in April 2020.

So, does hiking tariffs to combat the financial crisis or to make the industry sustainable a good idea? And that’s a question only the future can answer.

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