EXPLAINER. ARPU repair: Its impact on the telecom sector, your bill

The telecom industry has been under severe financial crisis over the last two years with mounting losses and increasing debt. But at the same time operators have had to invest in rolling out 4G network, purchase expensive spectrum, and payout hefty regulatory dues. With tariffs being low, the operators were not recovering enough revenues from the services to meet these expenses. Hence, an increase in tariffs is the only way for the operators to generate more cash to be able to not only address current capital requirements, but also to be ready to invest in 5G technology that is slated to be rolled out in next year.

ARPU is the average revenue per user that an operator collects every month. This is a key matrix to measure the health of the sector. Due to the declining tariffs, ARPUs have been coming down over the last 15 years. For example, in 2007, the ARPU for the mobile industry stood at over ₹300 per month. This had now dropped down to ₹79 in 2017 when Reliance Jio came in with its free voice plus data services. Now, the ARPU has moved up to ₹150, which indicates that operators are generating more revenue per user now with 4G services, compared to 2017, but much lower than what they used to earn in 2007 with just 2G services

Historically, India has had among the lowest tariffs in the world. Except for the initial years of mobility when services were offered at ₹16 a minute, consumers have been enjoying cheap rates over the last two decades. As a result, ARPUs in India have been below ₹200 for the most part. In comparison, operators in the US get about $50 per user

Low tariffs have enabled the proliferation of mobile services to the masses, making it available to over 1 billion people. However, this has also meant that operators are working on thin margins. This has led to several operators shutting down business, leading to huge value destruction and loss of employment for many. The biggest downside is that operators have not been able to invest back into setting up robust network. This has resulted in poor quality of service for consumers and worsening financial health for the industry.

Raising tariffs is the last resort to keep an industry afloat. Ideally, the government should have stepped in with reduction in licence fee and spectrum charges. Operators pay almost 30 per cent of their revenues to the government in various forms of levies. If this had been brought down by 50 per cent then perhaps operators could have done without a tariff hike. In the absence of any such sops, the consumers are being asked to pay more.

Yes, there will be an increase in bills by about 20-25 per cent. But operators are now beginning to bundle a number of services, along with the basic connection. So, while user’s wallet share for telecom services will go up, they can expect to get more value for their buck.

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