After almost two years, India’s second-largest service provider, Bharti Airtel, decided to increase the price of all its pre-paid plans by up to 25%. This was followed by Vodafone Idea, which also announced an increase in rates of pre-paid packages.
The price increase by Airtel is significant considering that it already has the highest Average Revenue Per User (ARPU) of INR 153 ($2.09) in India as per September results. On the other hand, Reliance Jio recorded an ARPU of INR 144 ($1.93) and Vodafone Idea of INR 109 ($1.46).
Prepaid constitutes almost 95% of the total Indian market. Significantly, the Airtel increase is sharpest for the 2G package, from INR 79 ($1.06) to INR 99 ($1.32). “With the increasing proportion of data subscribers as a proportion of total subscriber base (August 2021: 66.5%, March 2021: 64%, March 2020: 57.7%), this move is also possibly aiming to shift non-data customers to data customers, which can lead to higher ARPU for the industry. Furthermore, a lower proportion of voice-only customers can help telcos in re-farming some of the 2G/3G spectrum to 4G data usage, which can reduce operating expenses as well as reduce the requirement of further spectrum,” says India Ratings agency.
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This is in line with the stress in India to upgrade more than 300 million 2G subscribers to the 4G network. Jio has been asking for a policy change to realize the mission of 2G-mukt Bharat (2G-free India), making it easier for 2G users to move to a 4G network. By increasing the pricing of the voice-only package, Airtel seeks to make it more appealing for this segment to start using 4G.
This price increase will help the industry, which is reeling under massive debts, to generate funds for network modernization and the upcoming 5G auctions in the coming year. India may witness an increase in capex as two of the top three telcos increase rates.
On several occasions, Airtel has said the tariffs in India are not sustainable and has called on the industry to increase the prices. “Bharti Airtel has always maintained that the mobile Average Revenue Per User (ARPU) needs to be at INR 200 ($2.68) and ultimately at INR 300 ($4.03), so as to provide a reasonable return on capital that allows for a financially healthy business model,” says the statement issued by Airtel.
The price hike was long overdue because of the poor financial health of the Indian telcos. Airtel reported a loss of INR 7630 million ($102.5 million) while Vodafone Idea recorded a loss of INR 71320 million ($958.67 million) in the September quarter. Though they have got moratorium for four years, both Airtel and Vodafone Idea have to clear massive dues to the government.
Earlier this year, Airtel had increased the rates of its post-paid plans. While just 5% of the company’s users are in this segment, they contribute 20% of its revenue. This was considered safe as, typically, churn is limited in this segment.
The price increase is significant for Vodafone Idea as it still struggles to find investment. Over the last year, it has witnessed a shrinking of its subscriber base. This increase will help it invest in network modernization to provide better services and generate funds for the 5G spectrum auction.
The Jio factor
India has one of the lowest rates for voice and data services, but the competitive intensity has ensured that price increase is a rare phenomenon in the country. This is more so after the disruptive entry of Mukesh Ambani-led Reliance Jio Infocomm in 2016.
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The predatory pricing by India’s only pure-play 4G service provider, offering free 4G services for the first six months of its operations, forced the service providers to reduce their rates. Even as it introduced Indians from all segments of society to data services, telcos struggled to maintain profitability. At one time, the industry ARPU had dropped to just INR 79 ($1.06) in 2017.
Jio's entry also led to massive consolidation in the industry bringing down the number of telcos from 10 to 12 in every circle (service area) to just four (three private and one state-owned telco).
Now, even as Airtel and Vodafone Idea have increased pre-paid prices, it remains to be seen whether Jio will also follow suit. Jio has recently lost a significant number of subscribers, and it may like to continue with lower-than-market prices to improve its appeal to the new subscribers.