New Delhi: Mobile users in India may have to pay more for their monthly plans this year as tariffs are expected to increase up to 20 percent in the second half of the year, believe analysts. With the last industry-wide tariff hike done in December 2021, telecom operators will focus on monetisation via tariff hikes this year, but only after the general elections, they say.
This year will also mark the completion of the 5G services rollout, pushing the adoption further, and a likely introduction of 5G-specific tariffs.
Global brokerage firm CLSA said in a note that, in addition to rising data penetration and usage, “2024 will be the year of tariff hikes,” and that this will help the country’s mobile sector revenue grow in 2024 as well, after a 10 percent growth in 2023.
According to a note by financial services firm BofA Securities, the magnitude of the tariff hike would likely surprise the market.
“After more than two years, we expect a 20 percent plus tariff hike in the calendar year 2024. This is likely after general elections and would be needed to help improve the health of the industry, especially Vodafone Idea Limited,” it said.
Also Read: 6G Vision shows Modi govt doesn’t want to miss the bus like India did on 2G, 3G, 4G
Telcos to monetise 5G investments
While Bharti Airtel and Vodafone Idea undertook significant price hikes in entry-level plans during 2023, industry-wide 4G prepaid tariff hikes were last taken in December 2021.
Analysts expect that with 2023 likely to be the peak year for 5G capex (capital expenditure), telcos will now shift focus to monetising their investments.
“As 5G network fill-factor increases, telcos could eventually monetise by introducing daily data allowances on 5G plans,” IIFL Securities said in a note, adding that 5G monetisation could lead to average revenue per user (ARPU )improvement in the medium-term.
It further noted that 5G data consumption for use cases similar to 4G is 60-70 percent higher because most apps select higher feed density and better resolution videos and images depending on the connection’s quality.
“One of the consequences of the above is that subscribers who are shocked by their initial data consumption surge on 5G, may manually change data usage settings on their phones to 4G. This will keep data usage from surging and preserve battery life. It will also prevent more users from adopting 5G, especially in the absence of compelling use cases for 5G to date,” it added.
To avoid this, two operators – Reliance JIO and Bharti Airtel — have been offering unlimited 5G data for customers whose base 4G pack costs Rs 239, or more, to help users get accustomed to 5G speeds, without worrying about data limits.
“We thus see a sharp increase in per-capita data usage from 5G. A mix of organic data usage growth, higher feed density on 5G and higher time spent online could result in data usage per sub per month jumping to 50GB over time. We expect Reliance Jio and Bharti Airtel to monetise 5G by introducing daily data allowance,” said IIFL Securities.
It, however, highlighted that with no compelling use cases for the mobile retail customer on 5G and network capacity utilisation still low, the 5G daily allowance could be 12-18 months away.
Impact on Vodafone Idea
Equity research firm Jefferies also expects a tariff hike of about 20 percent this year with telcos focussing on improving return on capital employed (ROCE), which is likely to dip in FY24 (April 2023-March 2024) due to hefty network investments.
“Jio’s potential listing in 2025 is likely to make it more amenable to higher tariffs in 2024 to boost its growth. Moreover, after taking up a 33 percent stake in Vodafone Idea Limited (VIL), the government may also favour tariff hikes to support VIL’s survival, which in turn will improve the overall outlook for the tariff hike. This, along with the potential for at least a 30 percent rise in sector ARPUs, bodes well for the tariff outlook for the sector,’ Jefferies said in its note.
Driven by ongoing network rollouts and an increase in 5G penetration among smartphones to over 50 percent, Jefferies expects the 5G subscriber base for the sector to more than double to over 200 million in CY2024.
With a focus on monetisation, telcos may discontinue offering unlimited 5G data to their higher-ARPU data subscribers, while 5G by itself is unlikely to drive up ARPUs meaningfully, said Jefferies.
However, it will help Bharti Airtel and Reliance Jio to gain market share from Vodafone Idea, which is yet to begin the rollout of the 5G service, it added.
According to CLSA, 2024 will be a decisive year for Vodafone Idea as a viable player. The company is unable to roll 5G despite the four-year moratorium on government payments of spectrum and Adjusted Gross Revenue (AGR) due to delays in fundraising even though the government has converted interest on its dues to equity.
“Vodafone Idea fundraising is critical for 5G rollout while delays will trigger further share loss, which will be gains for Reliance Jio and Bharti Airtel that will complete 5G rollouts in 2024,” CLSA added.
(Edited by Richa Mishra)
Also Read: Encrypted mobiles with exclusive operating system — how Army is moving towards secure communication