Though an impending high-profile launch of a Reliance Jio—likely on the late Dhirubhai Ambani’s birth anniversary on December 28—should ordinarily have got incumbent telcos to start offering more discounts to stave off the competition, the opposite seems to be happening. Starting last week, telcos like Bharti Airtel, Idea and Vodafone have raised their tariffs in the capital by, in some data packages, as much as 25%—depending upon how the market takes it, chances are, it is a matter of time before similar hikes are seen in other parts of the country as well. That does suggest incumbent operators are still waiting to see how the Jio launch pans out since, with few existing phones able to work on the technology Jio is offering, its success will largely depend upon how many low-cost—or subsidised—phones/dongles/tablets it is able to bring into the market, and how fast. But more than that, the real issue is that, with or without a Jio, telcos are seeing a dramatic change in their most lucrative market segment—voice calls—and need to make this up by hiking data charges significantly. Indeed, if the government goes about pushing ‘net neutrality’ in the way it is being talked of, and Skype/Viber calls start cannibalising into voice revenues, telcos will be in an even greater soup than they are in right now.
Over the last year alone, Bharti Airtel’s voice ARPUs have fallen from Rs 162 per month to Rs 151, those for Vodafone from Rs 157 to Rs 144 and for Idea from Rs 144 to Rs 135. On the face of things, data revenues are up even faster; from Rs 133 to Rs 176 for Bharti Airtel, Rs 120 to Rs 141 for Vodafone and Rs 104 to Rs 150 for Idea. But while data revenues now comprise 17.6% of total revenues for Bharti Airtel—up from 11.5% a year ago—the revenues/profits are nowhere as much as those on voice calls. On average, while tariffs are around 40 paise a minute for voice, realisations are around 8-10 paise on data services. So, even as data traffic soars, as it has, telcos are getting more and more into the red with each passing telecom auction—the last one alone cost the operators Rs 1.1 lakh crore.
At a macro level, with upwards of $100 billion invested in the past two decades, telcos need more than $15 billion of ebitda for the industry to be viable; what they have instead, is an ebitda of under half that. Even if you assume the Delhi tariff hikes of around 15% are passed on to the rest of the country and there is no loss in traffic—which is a heroic assumption to make—this may not help that much. Of the total industry revenues of around Rs 170,000 crore, data revenues are around Rs 30,000-35,000 crore; once you take out the regulatory levies, a 15% hike will give industry around Rs 4,000 crore or so. In which case, subscribers will have to be ready for a series of data tariff hikes over a period of time—if the government thinks this will hit Digital India, as it will, it has to find ways to reduce levies on the industry including ways to reduce the cost of extra spectrum. In the long run, of course, the need for better returns cannot be driven by hiking data tariffs alone, it will require large consolidation in the industry—that is, in the process of telcos being taken over by one another, a significant portion of the $100 billion needs to be simply written off.