Telecom companies like Airtel, Jio, and others are likely heading towards a potential tariff hike. Credit rating agency ICRA said the rate hike is on cards as telecom operators in India are required to make sizable payments to the government. ICRA states that a sustained and substantial expansion of average revenue per user (ARPU) is critical from the perspective of telecom operators to meet their payment obligations.
The Supreme Court has given 10 years to some telecom operators to cancel their AGR shares. Telecom operators are also required to pay the auction installments and the regular government revenue share. It is unclear, however, whether the next round of tariff increases will be applied to telecom operators facing AGR quotas or whether it will be applied by all operators.
“While the sector is still struggling with high debt levels and weak debt coverage metrics, the latest budget has seen a respite in terms of steady improvement in the ARPU driven mainly by the tariff increases implemented in December 2019, the deleveraging undertaken by telecommunications and moderating investment intensity, ”Anupama Arora, vice president and head of corporate ratings at ICRA, said in a statement.
ICRA also noted that the postpaid segment has emerged as a battlefront in reference to Jio introducing its new postpaid Plus plans to the market and Airtel expanding its Rs 399 base plan. The company noted that postpaid plans bring increased user stickiness and a higher ARPU.
“It remains to be seen how this will impact competition, as India is typically primarily a prepaid market, while internationally, many countries are dominated by postpaid connectivity,” ICRA noted. According to the company, tariff increases and constant updates of 2G subscribers to 4G have improved ARPUs in the past.
It is unclear, however, whether the next round of tariff increases will be applied to telecom operators facing AGR quotas or whether it will be applied by all operators.
- According to the ICRA, a credit rating agency, telecom operators in India are required to pay large payments to the government.
- Telecom operators are required to make substantial payments to the government in the form of AGR dues, auction installments, and regular revenue share.
- ICRA noted that tariff increases and constant upgrades from 2G to 4G subscribers have improved ARPUs in the past.