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Business News/ Industry / Telecom/  Jio, Airtel must hike tariff to sustain revenue growth
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Jio, Airtel must hike tariff to sustain revenue growth

Both the operators posted improved revenue from operations for the fourth quarter

In a post-earnings conference call on Tuesday, Airtel’s managing director and chief executive Gopal Vittal said there is massive headroom for Arpu growth due to low tariffs in India. (MINT_PRINT)Premium
In a post-earnings conference call on Tuesday, Airtel’s managing director and chief executive Gopal Vittal said there is massive headroom for Arpu growth due to low tariffs in India. (MINT_PRINT)

Reliance Jio Infocomm Ltd and Bharti Airtel Ltd, which reported strong revenues for the March quarter with substantial customer additions, must hike tariff for wireless services to sustain the growth momentum in the long term, said analysts.

Both the operators posted improved revenue from operations for the fourth quarter. Reliance Jio’s revenue increased 18.9% year-on-year, and that of Airtel was 17.6% higher than a year ago. Reliance Jio added 15.4 million subscribers in January-March after struggling with a slowdown in net addition during the past three quarters, which averaged around 7.5 million. Airtel signed up 13.4 million customers in Q4FY21.

Analysts said the launch of cheaper JioPhone offers at the end of February is likely to have aided the telco’s slowing customer additions. However, with cost bound to increase for the Mukesh Ambani-led telco due to higher network investments, for 4G as well as 5G, and spectrum payout, Jio will have to raise prices of its voice and data services.

“Network cost rose 30% in FY21 to 221 billion and, considering the rise in payment to tower and fiber InvIT (infrastructure investment trusts), we estimate network cost inflation to remain high even in the next two years, not considering the 5G rollout…We see Jio running a risk of significant earnings decline in FY22. We believe the company will also need tariff hikes to maintain earnings growth momentum," ICICI Securities said in a report.

The recent surge in covid-19 cases may not impact the earnings of telcos for the June quarter, said analysts at Goldman Sachs. However, net subscriber additions could moderate in the current quarter, which is likely to keep revenues largely flat, they said.

“A sharp second wave of covid-19 infections across the country implies tariff hikes get further delayed. Near-term drivers would remain data consumption led organic Arpu (average revenue per user) expansion, healthy subscriber additions and market share gains," JP Morgan said in a report.

According to analysts at Goldman Sachs, Jio and Airtel are expected to report low single-digit revenues going ahead unless they raise prices of wireless services but they will continue to acquire larger market shares versus Vodafone Idea Ltd, which is saddled with huge government debt and a stretched balance sheet.

“Incrementally, Vodafone Idea’s challenges are likely to increase with Jio acquiring sizeable spectrum and resuming strong subscriber additions. Whereas, Airtel, with its premium brand positioning and relatively stronger balance sheet, will be a beneficiary irrespective of whether competitive intensity in the near term increases or moderates," analysts at Credit Suisse said in a report.

Vodafone Idea Ltd is yet to announce earnings for fourth quarter.

Both Reliance Jio and Airtel reported lower Arpu for the March quarter as the interconnect usage charge regime, which contributes 7-8% in revenues across the telecom industry, ended on 1 January, and a relatively short quarter. Airtel’s Arpu declined sequentially from 166 to 145 in Q4, while Jio’s Arpu came in at 138 versus 151 in October-December.

In a post-earnings conference call on Tuesday, Airtel’s managing director and chief executive Gopal Vittal said there is massive headroom for Arpu growth due to low tariffs in India and scope of upgrading low-paying 2G/3G customers (about 140 million) to 4G.

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Published: 18 May 2021, 07:40 PM IST
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