Jio unlikely to increase tariffs the way incumbent operators are thinking

Incumbent telecom operators are bracing for a tariff hike. The question is not if, but how much and how soon. Bharti Airtel’s Sunil Mittal says that, to his mind, Average Revenue Per User or ARPUs need to hit Rs 300, or double Airtel’s current figure, if the industry is to stabilize. Yet sources close to Reliance Jio say the company has not yet taken a call as it is focussed on increasing its market share to 50 per cent. In any case, its tariffs are even now about 20 per cent lower than its competitors.

The sense of urgency and clarity on the tariff increase will also depend on some key judgements from the Supreme Court. The new one is whether Bharti Airtel and Reliance Jio (whose own AGR dues are minimal and have already been paid) have to now pay the outstanding AGR dues of companies with whom they have had trading and sharing agreements because they are using their spectrum, although the companies are in IBC or have gone bankrupt. For instance, Reliance Jio is using around 34 per cent of the spectrum of Reliance Communications and Reliance Telecom. The AGR dues of these two companies which could fall on Reliance Jio might be to the tune of around Rs 25,000 to Rs 31,000 crore, according to various estimates.

In Bharti Airtel’s case, it is using the spectrum of Videocon and Aircel whose AGR dues are around Rs 13,765 crore.

However, the actual liability of the spectrum users depends on the amount of spectrum specified in the agreements. The relief here for Vodafone Idea is that it does not have any such agreement.

The second key issue which will determine Vodafone Idea’s and Bharti Airtel’s tariff hike strategy is what kind of staggered payment scheme the Supreme Court allows (10 or 15 years or less) them to pay their own AGR dues. Again, Jio need not worry as it has already paid its dues. The longer the duration of the tenure, the lower the yearly pay outs.

Mittal says that he is looking at ARPUs of Rs 250 within the next six months. That’s an increase of over 60 per cent from the company’s current ARPU of Rs 157. ICICI Securities, however, points out that Bharti Airtel can in fact hit an ARPU of Rs 165 without any tariff hike, merely by shifting more customers to 4G.

For Vodafone Idea, the estimates are that it will require an ARPU increase of Rs 79 if it wants to remain a going concern. This translates into a 70 per cent increase in ARPU. This is more or less in line with the kind of increase that Mittal is also looking at. Vodafone Idea could, of course, partly increase its ARPUs by moving more customers from 2G to 4G but it is far behind its rivals in consumers and coverage.

As to Reliance Jio, with a 34 per cent subscriber share, it will take the company between seven to eight quarters to reach its target of having a 50 per cent market share and it has to move aggressively.

If Reliance Jio continues with this ambition, it is unlikely to increase tariffs the way incumbent operators are thinking of currently. But its strategy could change, if it has to fork out the substantial AGR dues of Reliance Communications. The article is authored by Surajeet Dasgupta, Business Standard