Bharti Airtel, Reliance Jio expected to hike tariffs by 10%, says Jefferies
- Telecom providers Bharti Airtel and Reliance Jio could hike tariffs by as much as 10%, according to analysts at Jefferies.
- Most of the benefits of the last tariff hike have also been realized by Airtel, Jio and Vodafone Idea already, and their recent ARPU gains have been benign, gaining between 0.8-4%.
- The overall active subscriber base has also stagnated at 1.01 billion even as subscriber churn has increased, implying increased competition in the sector.
In its latest report, the brokerage says that Bharti Airtel and Reliance Jio are expected to announce 10% tariff hikes in Q4 of FY23, FY24, and FY25.
Most of the benefits of the last tariff hike have already flown to the telcos and their revenue and margins are increasingly under pressure. This necessitates a tariff hike by telcos, analysts say.
For the September quarter, Airtel, Vodafone Idea and Jio reported moderate gains in average revenue per user (ARPU), a key metric to measure a telecom company’s performance. While Jio’s ARPU increased 0.8% sequentially, Vodafone Idea reported a 1% increase. Airtel, on the other hand, reported a 4% increase due to premiumisation.
Earlier this year, Airtel started testing the waters of tariff hikes by withdrawing the ₹99 pack in select circles. Analysts at Jefferies believe tariff hike strategy fits perfectly with the telco’s rural expansion plans, which is likely to hurt margins further. Airtel’s EBITDA margin in Q2 fell to 36.9% from 43.7% in Q1.
Keeping these factors in mind, analysts at Jefferies have maintained their tariff hike outlook.
Subscriber churn rises as subscribers shop for better plans
Analysts at Jefferies also said that an increase in subscriber churn and mobile number portability (MNP) requests pointed to increasing competition in the Indian telecom sector.
Subscriber churn refers to the rate at which subscribers stop paying for services to the company. This has the adverse effect of dragging the margins down.
According to the telecom subscriber data for October 2022 released by the Telecom Regulatory Authority of India (TRAI), Jio and Airtel together added 2.2 million new subscribers. On the other hand, Vodafone Idea’s struggles continued, with its subscriber count declining by 3.5 million.
At the same time, the number of MNP requests in October surged to 11.81 million – close to September’s 11.97 million, which is the highest in 2022 – even as the total number of active subscribers remained stagnant at 1.01 billion.
In their Q2 FY23 earnings, telcos Airtel and Vodafone Idea reported an increase in subscriber churn, while their rival Jio witnessed a decline.
While Airtel’s subscriber churn stood at 3.3% in Q2 FY23, Vodafone Idea reported a significantly higher churn at 4.3%. On the other hand, Jio reported a churn of just 2%. Overall, the telecom industry’s subscriber churn increased to 3% in Q2 FY23 from 2.7% in Q1.
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