The latest round of tariff hikes by telecom companies in India was much needed for a sector that has had some of the lowest data charges in the world. It is notable that these upward revisions were led by Reliance Jio, the telecom services provider which began the price war that sent tariffs on a downward spiral about seven years ago.
Jio did not call for other tariffs to rise, but by hiking its own steeply (up by 25% on some subscriber plans), it made market space for its two private-sector rivals to follow. Hikes by Bharti Airtel and Vodafone Idea (VI) range from 10% to 21%, although their advocacy of an all-round rise has rung out loud and clear since November 2021, when they last raised charges.
The fact that these two had to wait for Jio’s move is a sign of the leadership Jio acquired through its price aggression. And Reliance’s deep pockets played a role in that.
Offering telecom services is a highly capital-intensive operation in India, with money guzzled not just by equipment and other set-up infrastructure, but also expensive airwave spectrum. Upgrading networks to keep pace with evolving technology is costly too. To roll out 5G services, for example, telecom firms spent about ₹1.5 trillion on spectrum, equipment and user outreach.
Yet, most telecom consumers are very price-sensitive—and charges have long been accordingly low. The average revenue per user for operators in this market is still under ₹200, a level that makes profitability quite a challenge even on huge volumes. As of April 2024, Jio’s active user base was reported at 433 million, Airtel’s at 383 million and VI’s 193 million.
But their returns-on-investment remain weighed down by weak pricing power. For them to keep investing and improving services, tariffs need to stiffen as we go along. According to brokerages, the latest hikes will boost their toplines by about 15%. While Jio and Airtel have been making quarterly profits, VI was in the most acute need of a revenue bump-up, given its heavy debt burden and trail of losses.
VI’s financial woes are partly on account of a judicial setback that saddled it with massive dues to the government, a blow that was so hard, it had put its survival in doubt. With various measures adopted in recent years against such an outcome, including a dues-for-equity deal that left the government as VI’s single largest shareholder, that worry is now thankfully in the past. After the latest tariff hikes, brokerages have turned positive again on its prospects.
Telecom service users may feel a slight pinch when they look at their bills, but even they have good reason for relief. All three private players in better financial shape would insure this vital market against the risk of duopoly dominance.
The government’s stake in VI, the result of a broader relief package for telecom in 2021, means that the Centre’s interests as a direct investor are aligned with the whole market’s: It takes at least three well-resourced rivals for a market to benefit from rivalry and serve as a win-win arena for customers and companies alike.
So, while low-income users may fret about bill inflation, the sector’s overall customer base must recognize it as a price worth paying for the quality and innovation that healthy competition assures. These tariff hikes came back-to-back, sure, but since Airtel and VI openly acted in relieved response to Jio’s move, they betray no sign of cartelesque collusion. Notably, the hiked rates are not extractive. After all, they remain a fraction of what telecom users pay in most other countries.
