Connect with us


Telecom: Tariff hike at last, but no structural changes! ICICI Securities

The much anticipated tariff hike has finally come – about two years from the previous hike in Dec’19. The resultant ~17% increase in blended ARPU for Bharti / VIL is in line with our anticipation. The tariff hike will translate into consolidated EBITDA (ceteris paribus) increase of 12.6% for Bharti Airtel (Bharti) and 25% for VIL (on low base). Operators have effected the tariff increase across prepaid plans, but the significant hike in base 2G plans could lead to some slippage of subs. We would have liked it more if the players had taken steeper hike in 4G data plans while maintaining affordability of 2G mobile services. We were anticipating  a change in tariff structure (despite assigning it a very low probability!) with moving away from unlimited data in base plan, which would have paved the way for premiumisation. Reliance Jio’s (RJio) introduction of Freedom plan did increase our hopes; hence, to that extent, the surprise element is missing which could have meant sustained ARPU increase.

Bharti and VIL take 20-25% tariff increase across prepaid category. The two companies have announced hikes of 20-25% across prepaid plans in past two days. We believe RJio will follow suit and increase tariffs by the same quantum – thus keeping its ‘20% more’ value proposition intact. Bharti and VIL have taken highest hikes in the base packs of Rs79, which is now revised to Rs99 for 28 days. Notably, in Q2FY22, the two companies increased their base plans from Rs49 to Rs79 (link). Thus, in past two quarters, tariff for the base voice-only pack (used by 2G subs) has doubled to Rs99 from Rs49. Data plan tariffs (for 4G users) have been increased by ~20%. The most popular plan (offering 1.5GB/day for 84 days) has seen a 20.2% jump to Rs719 from Rs598. The new tariffs for VIL will be applicable from 25th Nov’21 and for Bharti from 26th Nov’21.

Impact of tariff hike, ceteris paribus. The tariff hikes have been announced only in the prepaid category while postpaid rates remain unchanged. Postpaid base pack starts at Rs399 (40GB data per month) while the comparable new 1.5GB/day is priced Rs299 and 1GB data/day Rs265. The narrowing of postpaid tariffs vs prepaid and increasing content offerings with family plans should help Bharti push more postpaid subs. Prepaid constitutes ~80 of mobility revenues for Bharti and VIL; and new tariffs should result in 21% prepaid ARPU rise (14% of 2G revenue to increase by 25%; and remaining to rise to 20%). We see 16.7% increase in blended ARPU / revenue for Bharti and VIL.

Bharti: Bharti’s ARPU in Q2FY22 was Rs153, which should increase by Rs26 (or 16.7%) to Rs179. Incremental mobile revenue from the latest tariff hike is Rs99bn and, at 70% incremental EBITDA margin, the additional EBITDA would be Rs69.6bn. The Q2FY22 annualised consolidated EBITDA stood at Rs552bn and the tariff hike should add 12.6% to it.

VIL: VIL’s ARPU in Q2FY22 was Rs109, which should increase by Rs18 (or 16.7%) to Rs127. Incremental mobile revenue from the tariff hike is Rs55bn and, at 70% incremental EBITDA margin, the additional EBITDA would be Rs39bn. VIL’s Q2FY22 annualised consolidated EBITDA stood at Rs155bn and the latest tariff hike should add 25% to it.

Factors affecting translation of tariff hikes into revenues. 1) Bharti and VIL have taken their highest hikes in the base 2G pack, which would make telecom service less affordable (on the other hand, the heavily discounted category of unlimited 4G data plans has seen relatively lower price increase); 2) we expect subs decline in the next few quarters due to reduced affordability in base 2G plans, and SIM consolidation due to general increase in tariffs; 3) subs downgrade to lower GB/day plans; 4) VIL has in fact cut tariff on its 365-day plan with lower allowance of 1.5GB/day (earlier 2GB/day); and 5) new plans make JioPhone Next relatively attractive.

CT Bureau


Click to comment

You must be logged in to post a comment Login

Leave a Reply

Copyright © 2023 Communications Today

error: Content is protected !!