Analysts said on Monday that the industry-wide pricing hikes enacted last week by Jio, Airtel, and Vodafone Idea (Vi) are likely to be easily absorbed by consumers and will not result in major loss of connections. Unlike previous hikes, SIM consolidation will have a lower impact than the 4-5 percent churn projected in 2021, given the majority of the market is already consolidated, according to a JP Morgan note. "Airtel's lower tariff hikes at entry levels are likely to contain the impact of churn and downtrading," the company said.
Bharti Airtel and Vodafone Idea (Vi) announced on Friday that mobile charges would be increased by up to 21%, barely a day after market leader Reliance Jio executed a 20-25% increase across the board. This has reduced Jio's discount to its opponent from 20% to 15%. Axis Capital supported the idea, claiming that the raise is doable for both urban and rural consumers, particularly given the sticky nature of data usage. "While we have taken Bharti as the base case, even Jio's higher increase in tariffs and 5G monetisation are unlikely to have much impact on household expenditure," according to a note of study. It stated that the pricing hike will result in an additional influx of Rs45,600 crore over the next 12 months, but the overall impact on inflation will be minimal. "With telecom weight of 1.84 in inflation and expected incremental inflow at just 18 per cent over FY24 telecom revenue, we do not expect a meaningful impact on inflation," the report continued.
As a result, Bank of America expects all three telecoms to face lower downgrade risks. However, Vi continues to be the most vulnerable to subscriber turnover. While Airtel has raised charges by a smaller margin than Jio (12-25 percent), it has also included Airtel's 2G customer base, which Jio has not touched. Vi has also focused the most on unlimited data plans, with validity periods ranging from 28 days to a year.
"Introducing 5G data at higher plans will assist to begin monetising 5G investment. Furthermore, heavy data users would be sent to the 5G network, partially unclogging the 4G network," ICICI Securities stated in a note. Industry ARPU to Increase Meanwhile, CareEdge Ratings believes that the higher pricing will increase telcos' blended Average Revenue Per User (ARPU) by 15% to Rs 220 in FY25, up from approximately Rs 191 in FY24. "According to our analysis, every Rs 1 increase in ARPU will add around Rs 1,000 crore to the industry's Profit Before Interest, Lease Depreciation, and Tax (PBILDT). This will help telcos deleverage money, upgrade technology, and expand their networks," it stated. The brokerage forecasts PBILDT to increase by 20-22 percent in FY25.
This is a structural advantage for an industry whose Return on Capital Employed (ROCE) has been dragged down by massive investments in 5G rollout, including spectrum purchases. Data stickiness is adjusted to guarantee that tariff increases are adequately absorbed: Analysts Analysts said on Monday that the industry-wide pricing hikes enacted last week by Jio, Airtel, and Vodafone Idea (Vi) are likely to be easily absorbed by consumers and will not result in major loss of connections. Unlike previous hikes, SIM consolidation will have a lower impact than the 4-5 percent churn projected in 2021, given the majority of the market is already consolidated, according to a JP Morgan note. "Airtel's lower tariff hikes at entry levels are likely to contain the impact of churn and downtrading,"it added.
Bharti Airtel and Vodafone Idea (Vi) announced on Friday that mobile charges would be increased by up to 21%, barely a day after market leader Reliance Jio executed a 20-25% tariff increase across the board. This has reduced Jio's discount to its opponent from 20% to 15%. Axis Capital supported the idea, claiming that the raise is doable for both urban and rural consumers, particularly given the sticky nature of data usage. "While we have taken Bharti as the base case, even Jio's higher increase in tariffs and 5G monetisation are unlikely to have much impact on household expenditure," according to a note of study.
It stated that the pricing hike will result in an additional influx of Rs 45,600 crore over the next 12 months, but the impact on total inflation will be minimal. "With telecom weight of 1.84 in inflation and expected incremental inflow at just 18 per cent over FY24 telecom revenue, we do not expect a meaningful impact on inflation," the report continued.As a result, Bank of America expects all three telecoms to face lower downgrade risks. However, Vi continues to be the most vulnerable to subscriber turnover. While Airtel's pricing increase is less than Jio's 12-25 percent, it also includes Airtel's 2G subscriber base, which Jio has not touched. Vi has also focused the most on unlimited data plans, with validity periods ranging from 28 days to a year.
Introducing 5G data at higher plans will assist to begin monetising 5G investment. Furthermore, heavy data users would be sent to the 5G network, partially unclogging the 4G network," ICICI Securities stated in a note. Industry ARPU to Increase Meanwhile, CareEdge Ratings believes that the higher pricing will increase telcos' blended Average Revenue Per User (ARPU) by 15% to Rs 220 in FY25, up from approximately Rs 191 in FY24. "According to our analysis, every Rs 1 increase in ARPU will add around Rs 1,000 crore to the industry's profit before interest, lease depreciation, and tax (PBILDT). This will help telcos deleverage money, upgrade technology, and expand their networks," it stated.The trading group anticipates PBILDT to increase by 20-22 percent in FY25.
This is a structural advantage for an industry whose Return on Capital Employed (ROCE) has been dragged down by massive investments in 5G rollout, including spectrum purchases.
