Indian telecom consumers are paying about 25 per cent more for voice and data services than what they were paying in 2018-19. While this is good news for telecom operators, it also indicates that subscribers are willing to pay more for better quality services.

According to Priyanka Bansal, Associate Director of Corporates, India Ratings & Research, the last major tariff hike occurred in December of 2019, besides which, no direct tariff hikes have been seen in the sector apart from revision in tariffs for select plans. Therefore increase in Average Revenue Per User (ARPU) is likely to be a result of the change in the mix of the subscriber base, wherein broadband subscribers are increasing as the percentage of the overall subscriber base.

Increase in ARPU

The increase in tariffs has resulted in an overall increase of 31 per cent in ARPU for the operators, in the past three fiscal years, starting at ₹110 in FY19 to ₹ 145 in FY21, according to CRISIL Research. The Average Monthly Payout for basic 2G services has increased by 23 per cent (from ₹52 in FY19 to ₹64 in FY21) while the price per GB for 3G and 4G services has increased 26 per cent (₹4.6 in FY19 to ₹5.8 in FY21).

Also read: ‘5G tech can power India to one of top two markets for Ericsson’

Experts believe that there is headroom to increase tariffs that would drive operators’ ARPU by an additional 37 per cent to ₹200, a level that will set the market for the industry to thrive. The consensus among experts is that that although the telecom market is price sensitive, demand for telecom services will be inelastic to a 30-40 per cent increase in tariffs, should operators collectively do the same. However, consumers might downgrade to lower data plans, lose their second sim, and shift operators as a consequence of the price hike.

More broadband subscribers

According to the data published by the Telecom Regulatory Authority of India, the percentage of broadband subscribers from the total number of telecom subscribers has increased to 64.4 per cent, in May 2021 from 47 per cent in March of 2019. Prashant Singhal, global emerging markets leader for media & entertainment and telecommunications at Ernst & Young said, “ARPU coming from a customer with a 4G data plan is going to be higher than those on 2G services, as subscribers are upgrading to 3G and 4G services. So ARPU will increase even without tariff hikes.”

“Telecom tariffs in India are one of the lowest in the world,” said telecom industry expert Hemant Joshi, “Operators are low on cash, and especially if they wish to invest in the upcoming 5G wave, they will need more revenue. Present networks will also deteriorate, should operators not have enough funds to maintain it.” he further added.

According to Singhal, expenditure on telecom services is a very small part of disposal income for subscribers across the socio-economic strata. “It is not like we have not paid high telecom tariffs as a country in the early 2000s when telephone bills could go as high up as Rs 20,000. This means that demand for these services is relatively inelastic” Singhal said.

“Paying an additional 10-20 per cent on your present plan is doable for everyone, especially given the essential services this industry has provided during the pandemic” Singhal added.

Explaining how the market reacted to the December 2019 tariff hike, Isha Chaudhary, Director, CRISIL Research said, “While the subscribers base did see a churn in the following months, the loss seemed transitory as the current subscriber base has already exceeded pre-tariff hike levels.”

The onset of pandemic and increase in demand for telecom services has also aided in an uptick of subscriptions. Surveys conducted by Ericsson have also found that consumers are willing to pay more for the upcoming 5G technology, with Indian subscribers willing to pay an additional 50 per cent in tariffs for 5G services in 2021. However, experts warn that subscription rates might change as households downgrade to a single sim or subscribers let go of their secondary sim.