Telecom company Bharti Airtel brought the curtains down on a low-tariff era when it hiked tariffs on its prepaid services by nearly 20 to 25 per cent as it reportedly aims to increase its average revenue per user (ARPU).
The tariff hike came into effect from November 26 but immediately after the announcement, on November 21, the stock of the telecom firm surged nearly six per cent intraday on the BSE, touching a 52-week peak.
The increase in tariff brings into focus the concept of average revenue per user or ARPU. Telcos have reportedly been stating that the ARPU would need to be increased to Rs 200 first, followed by Rs 300 to boost their financial position.. Currently, telcos have an ARPU in the range of Rs 150. According to news reports, Airtel had an ARPU of Rs 153 during the second quarter of the fiscal year 2021-22, while other telcos like Vodafone Idea (Vi) and Reliance Jio had ARPUs of Rs 109 and Rs 143.6, respectively. The adjusted revenue per user is a measure that indicates the revenues that a telecom company generates from its customer base each month.
Close on the heels of Bharti Airtel announcing a hike in its tariff, Vi also announced an increase in tariff up to nearly 25 per cent with effect from November 25. Further, Jio announced an increase in prices by nearly 21 per cent with effect from December 1, signalling an end to the low-tariff era among telcos.
Impact of tariff increase
According to an estimate from a recent report, the tariff increase would boost the ARPU of telcos by 20 per cent, while the operating profit of the telecom players would go up to Rs one lakh crore come FY23. Further, it would also pave the way for a smoother rollout of 5G services in the country, and telcos would have space to invest in the range of Rs 1.5 to 1.8 lakh crore for the rollout of the same. In a recent statement, the Communications and IT Minister had noted that 5G spectrum auctions are expected to be launched in the second quarter of 2022.
The tariff increase also gains significance in the wake of the Supreme Court’s judgement asking the two telecom players, Vi and Bharti Airtel, to pay adjusted gross revenue or AGR dues. Although both the players have opted for the moratorium of four years on payment of dues, the onus of dues payment continues to lie with the telecom players. As per reports, the Supreme Court directed telcos to pay AGR dues worth Rs 1.19 lakh crore in its October 2019 judgement. The dues that Bharti Airtel had to pay was to the tune of Rs 43,980 crore while Vodafone Idea had to pay Rs 58,254 crore. In September 2020, the SC allowed telcos to make payments over a span of ten years.
The adjusted gross revenue is the revenue share that telcos are needed to pay to the government and comprise licence and spectrum fees. The government, in September 202, said that non-telecom revenues would be excluded from the AGR definition prospectively, from October 2021.
The telecom relief package announced in September this year including the four-year moratorium on payment of AGR dues, the move by telcos led by Bharti Airtel to hike tariff and eventually increase average revenue per user are expected to lift the telecom sector in India and pave the way for the rollout of 5G services.
Bharti Airtel’s move to hike the tariff of its prepaid plans between 20 and 25 per cent has been followed up by other telcos, in a bid to increase the ARPU, which in turn, is expected to boost the telecom sector.
What does the term average revenue per user signify?
The term average revenue per user or ARPU is used in the telecom sector to indicate the earnings that are generated for every unit or user every month.
What is the ARPU that telcos in India are aiming for?
The current ARPU in India is in the range of Rs 150 and telcos aim to increase it first to Rs 200 and eventually to Rs 300.
What is AGR in the telecom sector?
Adjusted gross revenue or AGR is the term used to describe the licence and spectrum charges that telecoms pay in the form of revenues to the government. In September 202, AGR was redefined to exclude non-telecom revenues in a prospective manner.
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