Why tariffs need to rise in India’s telecom sector



To say that the telecommunications industry is in trouble is actually an understatement. It’s under tremendous stress, Bharti Airtel chairman Sunil Mittal said in an interview in July this year.

Mittal stressed the need to increase tariffs, saying the main cause of this crisis is low tariffs.

In the telecommunications sector, a tariff is an open contract between a telecommunications service provider and the customer, filed with a regulatory body (TRAI in the case of India).

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This tariff describes the tariffs, fees and charges for telecommunications services and should at least cover the cost of providing the service to the consumer. However, the data rates in India are the lowest.

According to a UK-based price tracker, 1 GB of data in India was selling for less than 10 cents in 2020, the lowest in the world. In comparison, the cost for 1 GB of data is $ 8 in the US, $ 1.4 in the UK, and 60 cents in China.

Since the entry of Reliance Jio, the average revenue per user (ARPU) has dropped significantly in India (from around Rs 220 to Rs 145). As a result, the telecommunications industry is under debt of nearly Rs 5 lakh crore.

Over the past 5-6 years, around ten operators have gone out of business, two have had to merge and the rest are making marginal profits. What’s more, a Supreme Court ruling last year forced operators to pay huge sums to the government after their dues recalculated last year, leaving telecoms operators breathless.

In view of the crisis and to ensure India’s telecommunications sector remains at least a three-player market, the Center announced earlier this week that telecommunications may defer payment on spectrum and other liabilities by four. years and that any interest accrued during the period could be converted into equity.

While this move has certainly brought great relief to telecom operators, an increase in data tariffs is needed to signal a sustained recovery. In fact, the price increase is already being put into practice. Today, Indian telecommunications consumers pay around 25% more for voice and data services than they paid in 2018-2019.

As a result of this tariff increase, ARPU has increased by 31% – Rs 110 in FY19 to Rs 145 in FY21 – for operators over the past three fiscal years, according to CRISIL Research.

Telecommunications experts believe there is more leeway to increase tariffs. They add that if the ARPU approaches Rs 200, the telecommunications sector will rebound from losses and become profitable again. However, to ensure this, telecom operators should work collectively and not engage in a price war.

Disclaimer: RIL, the promoter of Reliance Jio, also controls Network18, the parent company of CNBCTV18.com.

(Edited by : Jomy Jos Pullokaran)


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