Home / Industry / Telecom /  Customers may face higher tariff as telcos increase investment in network

Investments in spectrum and equipment to build robust network ahead of the roll out of 5G wireless service will require telecom operators to raise prices of voice and data services in the medium term but they may not do it immediately, said analysts.

As a result, customers may have to shell out more for the services they avail due to tariff hikes. Bharti Airtel Ltd’s management has said the telco will not lead in the next tariff hike, while rival Vodafone Idea Ltd has maintained that it will not shy away from moving first in the industry.

With its new offers on 4G feature phone, JioPhone, launched on 1 March, Reliance Jio Infocomm Ltd may not look at raising prices in the near term as it aims to acquire 300 million low-end 2G customers on other networks, analysts said.

“While Jio is likely to focus on reviving subscriber growth in the near term, over the medium term, it will have to take price hikes to support network investments and the upcoming 5G roll out, in our view," Credit Suisse said in a report.

To augment their coverage and improve service quality of 4G services, Reliance Jio and Airtel placed bids for spectrum higher than the expectations of the government and analysts.

The telcos bought airwaves in the sub-gigahertz (sub-GHz) bands, with Airtel intending to use them for indoor penetration and expand its rural footprint, while Jio aims to add more subscribers by focusing on customer experience.

In the current fiscal, Jio’s net subscriber additions have slowed to 7 million a quarter, a 65% decline from the 20 million it added every quarter in the previous year. It added only 478,917 users in December versus rival Airtel’s addition of 4.1 million.

“We think the auction bid placements should further strengthen the two larger operators (Airtel and Jio), both of which remain well positioned to gain market share from Vodafone Idea Ltd. With large investments in network, tariff hikes are inevitable, in our view," said BNP Paribas in a report.

Reliance Jio acquired spectrum of 57,122.65 crore, while Airtel bid for airwaves worth 18,698.75 crore. Jio bought spectrum worth 34,491 crore in the 800MHz band alone, which was due for renewal in 18 of 22 telecom circles in the country.

The delay in tariff hike, however, could be a cause of concern for Vodafone Idea, which bought airwaves worth only 1,993.40 crore, mostly for renewal due to large spectrum holding and stressed financials.

“The cash outgo will be keenly watched given high debt level of the incumbents and continued delay in tariff hike. This could lead to funding gap concern for Vodafone Idea given continued delay in raising fund, high debt level, and renewed pricing aggression in some segments," Axis Capital said in a report.

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