Jio and Airtel Raise Mobile Tariffs from July 3

Following the announcement of a telecom tariff hike by major Indian telecom companies, Reliance Jio and Bharti Airtel, stock prices reacted early in the morning. Bharti Airtel’s share price opened at ₹1,536.25 per share on the NSE and reached an intraday high of ₹1,536.25. Similarly, Reliance’s share price increased as Jio is part of Reliance Industries Ltd (RIL). However, Vodafone Idea’s share price experienced selling pressure. It opened at ₹19.10 per share but quickly dropped to ₹17.91, losing about 2.50% from Thursday’s close of ₹18.52.

Airtel’s Tariff Hike

On Friday, Bharti Airtel raised tariffs for all its prepaid and postpaid users to increase average revenue per user (ARPU). This move came a day after Reliance Jio increased its rates by 12-15%. Airtel stated that the ARPU needs to be above ₹300 to maintain a financially healthy business model for telcos in India. This level of ARPU is necessary to support significant investments in network technology and spectrum, providing a modest return on capital.

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Airtel announced that it will revise its mobile tariffs starting July 3, ensuring a modest price increase of less than 70 paise per day for entry-level plans to avoid burdening budget-conscious consumers.

Vodafone Idea’s Expected Move

Vodafone Idea is also expected to follow with a similar rate hike. This is the first major rate hike since 2021, aimed at increasing ARPU due to the lack of monetization of 5G services despite significant investments in airwaves and network rollout. Experts say Jio and Airtel have already invested over ₹2 lakh crore in rolling out 5G but have not seen a return on investment yet, as they have been offering free 5G services to attract customers.

Impact of Tariff Hike

The telecom sector last raised tariffs by 20-25% in November 2021. Analysts predict that the positive impact of these new rate hikes on telcos’ revenue will be seen by the second and third quarters of FY25, depending on the hike’s magnitude.

Brokerage CLSA estimated that Jio, Airtel, and Vodafone Idea need at least a 20% hike in headline rates post-elections to grow sectoral ARPU to around ₹200-217 by FY25-26 from an estimated ₹180 in FY24.

In May, Airtel’s Managing Director, Gopal Vittal, said substantial tariff increases were needed at an industry level as the existing 9.5% return on capital employed (RoCE) was very low. Vittal noted that while tariff hikes might lead to some SIM consolidation, the benefits are greater as consumers would adjust to the higher rates.

A recent BofA Securities report, based on an online customer survey, found that around 36% of Jio and Airtel users were willing to accept a potential 20-25% tariff hike post-elections.