Why Telcos, Airlines Need To Increase Tariffs

The government is worried about the state of the telecom and airline companies and has advised them to end the price war and go for a rational hike in rates, a business newspaper reported recently. It has said that telcos and airlines are on a path of self-destruction because of the price war, therefore a reasonable increase is the need of the hour. Let’s take a look at some related numbers.

As per existing framework, tariff for mobile services is under forbearance except for National Roaming service and Unstructured Supplementary Service Data (USSD). Telecom Service Providers (TSPs) have flexibility to design and offer tariff as per prevalent market environment, subject to the condition that these tariffs have to be consistent with the regulatory framework and principles. Currently, all TSPs are offering the bundled services which include voice and data at very competitive prices. It is generally a trade-off between monthly fixed charges and variable (call) charges. Therefore, average subscriber outgo per outgoing minute for usage from home service area would be a realistic indicator of average tariff.

Further, led by price cuts, Average Revenue Per User has declined significantly in the past one year.

The fall in tariff due to competition has impacted the businesses of all telecom companies. The operating profits of the telecom companies have witnessed significant fall since 2016/17.

Till 2016/17, growth based on aggregate sample of over 100 companies, 2017/18 based on short sample of 18 companies.

It is difficult to compare the tariff levels in different countries. The tariff level in India is generally considered to be amongst the lowest in the world.

Business Today

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