Telecom Tariff Hike: Is It Sustainable?

Telecom has always been purely a consumer-driven sector where companies had to change their products according to consumer demand and competition build-up.

TataDocomo and Reliance Jio are the best examples where competition pushed off big players’ direction and pushed them to make huge changes in the products they offer.

Offering 1ps/sec to cheap high-speed data, these companies gave a new turn to the sector offerings where everyone had to follow to prevent churn from their existing customer base.

Easy porting procedures and other social media connectivity options made it even more difficult for these firms to retain their clients.

After the launch of Reliance Jio in 2016, the biggies of the telecom sector lost not only their revenue, but also a huge chunk of their customer base.

In September, Vodafone Idea and Bharti Airtel lost over 49 lakh subscribers, while competitor Jio added 69.83 lakh, new users, to their network, according to data from the Telecom Regulatory Authority of India (TRAI).

Experts are doubtful about the theory that this increase in tariff has the potential to cover up, if not fully at least a part of these shortfalls.

The sector has been a consumer-driven market and even a small company with attractive plans can drag loyal customers away from these big players.

It has been a history in this sector that whenever a new company introduces a unique plan in the market, customers take no time to switch. Tariff hikes may cover up the losses for these customers but are sure to disinterest customers, as paying higher costs for the same services can adversely affect the loyalty of the consumer and people will search for better alternatives.

Tariff rises for voice and data services have been agreed to by all operators. The average increase in tariffs varies from 15 percent to 41 percent across different plans. It is projected that the rise in tariffs would give the sector a significant boost in terms of both topline and bottom line. Hypothesis indicates that these rises are “structural positives” for the sector weighted down by poor cash flows and rising levels of debt.

These hikes may act as a cover-up for losses of these companies, but the question is for how long will this help? A firm asking for higher money from its customers for the same service it used to offer for the lesser price may not be able to stick to the new tariffs for long or retain the customer as a consumer will always be in search for cheaper alternatives, or the provider who gives him the best deal.

This move may increase churn for these companies. Ultimately, with the decline in the customer base, the revenue will also fall. These hikes may help these companies to gain some profits for Q1 or Q2 of 2020, but it is hard to say whether this will help them in the long run.

We feel that telecom companies should bring in better ideas to add more customers rather than increasing the burden on the existing ones.

(Gaurav Garg, is Head of Research at CapitalVia Global Research Limited) – Moneycontrol