Move signals an end to three-year-long price war that upended the sector
The news of the tariff hike catapulted Bharti Airtel to the top of the gainers in the Sensex on Tuesday
New Delhi: Reliance Jio Infocomm Ltd, India’s only profitable telecom company, unexpectedly said it will join rivals Bharti Airtel Ltd and Vodafone Idea Ltd in raising tariffs, indicating that a three-year-long price war that unleashed an unprecedented consolidation in the industry is nearing an end.
The Mukesh Ambani-controlled Reliance Jio will “take measures including appropriate increase in tariffs in the next few weeks in a manner that does not adversely impact data consumption or growth in digital adoption and sustains investments," the company said on Tuesday.
If Reliance Jio indeed raises tariffs, it will provide much-needed relief for rivals Vodafone Idea and Bharti Airtel, which have reported record losses in the September quarter. If the truce sustains, it will also mark the end of the bloodiest chapter in India’s telecom history that saw units of large Indian conglomerates as well as overseas telcos, including UAE’s Etisalat, Japan’s Docomo and Norway’s Telenor shutting shop or selling their India businesses.
“Much will depend on the quantum of price hikes but this is a welcome step given that the companies needed to boost their revenues," said Mahesh Uppal, director at communications consulting firm Com First India.
Separately, a spokesperson for Reliance Jio said the company will hike tariffs in compliance with any regulatory action that sets a price floor on services of telecom operators. He was referring to media reports that the government plans to introduce a floor price for telecom tariffs to prevent predatory pricing.
In a statement directed at its rivals who still operate 2G networks, Reliance Jio called upon the government and the regulator to mandate a ‘2G-mukt’ policy to achieve the objectives of Digital India. Reliance Jio is the only operator in the country to have a pan-India 4G network. ‘
Others operate a mix of 2G, 3G and 4G services.
Airtel and Vodafone Idea had on Monday said they would hike tariffs of their services from 1 December. The tariff hike will come after a decade-long period of hyper competition and adverse regulatory orders. The news of the tariff hike catapulted Bharti Airtel to the top of the gainers in the S&P BSE Sensex on Tuesday. The shares climbed 7.4% to close the session at ₹439.25.
Similarly, Vodafone Idea’s market cap climbed by more than a third as its share rose 34.7% to ₹6.02 on BSE.
“Ahead-of-the-event press releases, without specifics, on price increases is a first-of-its-kind development in the sector, if our memory serves us right," an earlier Mint story earlier cited analysts at Kotak Institutional Equities as saying in a note to its clients.
Jio’s surprise move adds an interesting twist in the saga that has only seen it setting the agenda for the industry right from the day of its launch in 2016.
Bundling of unlimited free voice services with very cheap data prices had then forced established rivals like Airtel and Vodafone Idea to match tariffs, leading to a deterioration in their finances.
A price hike had come to be an “unheard-of event" in an industry that has seen unrelenting competition and had at one point more than a dozen operators in the country.
Dealing a severe blow to older telecom operators, the Supreme Court on 24 October directed them to pay at least ₹92,000 crore in past dues to the government within three months.
Many of these companies have shut shop following the bruising price war unleashed by the deep-pocketed Reliance Jio.
The verdict upheld the government’s definition of adjusted gross revenue (AGR) which included revenue from non-core telecom operations such as rent, dividend and interest income, marking the end of a 14-year-long legal battle.
“Nobody asked them to take the tariffs to ridiculously low levels. They must have realized this was unsustainable. It’s a good sign in the interest of the sectors as consumers need the companies to survive as much as the companies need the consumers," a senior official at Telecom Regulatory Authority of India said.