Analysts presented a mixed picture on potential tariff hikes by Indian telecom operators who have lost subscribers after the last round of increases.
JP Morgan said the operators may keep tariffs unchanged in 2023 and instead look at other ways to boost average revenue per user to avoid losing users at a time when Bharti Airtel and Reliance Jio are focusing on expanding their 5G services.
“We are not baking in any tariff hikes at all in CY23. We believe it will be difficult for operators to do another 20% hike, as subscribers found it difficult to absorb the last 20% hikes, leading to heightened churn,” analysts at JP Morgan said in a note.
Analysts at Jefferies highlighted the dilemma over tariff hikes. “We believe there is greater uncertainty on tariff hikes in the near term given that large capacity creation with 5G will shift focus on boosting utilization. Moreover, focus on market share will rise amidst moderating data subscriber growth and VIL’s worsening situation,” they said in a note.
The analysts at Jefferies, however, expect that in the next fiscal year, revenue growth in the telecom sector would be steady at 14% led by a 10% tariff hike this quarter through March. Meanwhile, analysts at BNP Paribas expect tariff hikes to go through, albeit with changes to existing plans, as the last tariff hike was done more than a year ago, in November 2021, when telcos raised pre-paid tariffs by 20-25% across plans.
“We believe operators would raise tariffs for 4G services and also look to lift ARPU from 5G subscribers by offering them a larger data quota at a lower cost/GB,” the brokerage said.
Operators could also offer plans that require customers to pay slightly more, but are likely to keep 5G plans much cheaper on a per GB basis, it added.
JP Morgan analysts noted that given the focus of both Jio and Bharti on rolling out 5G services, lack of support for tariff hikes from peers in an inflationary environment, the growth in Arpus will come from greater consumption post expansion of 5G services.
“While 5G is unlikely to drive up Arpus without tariff hikes, it will help Bharti/Jio gain market share from VIL,” it added.
The No 1 and No 2 carriers are likely to aggressively target premium postpaid users of Vodafone Idea as they expand 5G services across India, which will give them a first-mover advantage and help to gain marketshare from VIL, which faces constraints on 5G capex.
Jefferies said in the longer term, Arpus in India could rise at least 30% given the cojuntry’s low Arpu levels per capita GDP ratio on the back of a 10% increase in tariff in the ongoing quarter ending March 2023.
“During FY24, we expect sector revenue growth to be steady at 14% YoY led by 10% tariff hike in 4QFY23. Reliance Jio – the price leader – will also favour higher tariffs before its potential IPO in 2024/25,” it said. It predicted that in the absence of mobile tariff hikes, Reliance Jio’s Ebitda will be lower by 25% to $6.5 billion, which could meaningfully impact Jio’s valuation during listing.
On 5G devices in India, JP Morgan estimates that India will have 235 million 5G enabled smartphones, higher than the potential 100-200 million 5G subscribers by March 2024.
While Jefferies expects 5G smartphones to form 100% of overall smartphone shipments and about 50% of total 470 million smartphone devices by end-FY24, it added that India could have 100-200 million 5G subscribers by December 2023, much lower than the devices.
BNP analysts said that if Jio, which is reportedly working on introducing lower priced 5G devices that may cost upwards of ₹15,000, could force other vendors to introduce lower priced devices. Livemint