Airtel, Vi Can Trigger Upto 18% Tariff Hike, Indirectly: Charge Tax, Reduce Validity, Less Data & More

Reliance Jio, the industry leader, has launched two new low-cost plans. These plans are for JioPhone users and are priced at Rs 1,499 for one year and Rs 1,999 for two years.

 The announcement of these plans emphasizes two points. First is Jio’s aggressiveness to add more subscribers. Second is an unlikely hike in tariffs across the industry for the time being. 

In response to market leader Reliance Jio’s continued pricing aggression, industry executives and analysts predict that Vodafone Idea and Bharti Airtel will use indirect methods to increase successful tariffs – without increasing headline prices – and improve average revenue per consumer (ARPU).

Customer To Pay The Tax In Addition To The Plan MRP Value

PhillipCapital, on the other hand, claimed that loss-making Vi doesn’t have a choice; a tariff increase is the only way it can stay afloat, particularly if it wants to improve cash flow and pay down debt.

 “Vi will have to take the lead in tariff hikes, be it via direct or indirect methods, and hope Bharti and Jio follow suit.”

 One of these indirect alternatives, they suggested, could be to make the package value of all prepaid packs pre-tax, requiring prepaid phone customers to pay the tax in addition to the plan MRP value. 

They went on to say that such a move would result in a substantial rise in effective tariffs.

 After Jio recently reduced the cost of using a VoLTE feature phone by 25%, Vi is said to have postponed its immediate tariff hike plans until the June quarter.

To be sure, while Airtel has maintained that industry average revenue per user (ARPU) needs to rise to Rs 200 in the near-term, it has repeatedly said it won’t take the lead in raising tariffs but would definitely follow if either Vi or Jio raises rates. 

This, since a tariff hike would further increase its premium over Jio to more than the current 10-15% level, opening the Sunil Mittal-led telco to the risk of potential subscriber losses, quoting update from The Economic Times

Experts View On Tariff Hike

Other indirect approaches, according to senior industry executives, may include lowering the validity duration of postpaid plans or reducing data and voice allowances on current prepaid plans without changing the pack value. 

Cutting down on allowances, they added, would drive customer migrations to higher-value plans or even to booster packs once their allowances expire, both of which would be tariff accretive for incumbent operators.

PhillipCapital expects Vi and Airtel to use indirect strategies such as “maintaining their current prepaid plans at the same price, but making them pre-tax, which would translate into an effective tariff hike of 18%”.

 Another likely strategy that these incumbents could use, it said, is “lowering the validity period of some postpaid plans to 24 days from the current 28 days,” which could also result in a 16% effective tariff hike without upsetting customers much, quoting update from The Economic Times

Given that Jio’s rates are already at a 10-15 per cent discount to the two incumbent carriers, some analysts warn that requiring price-conscious prepaid users – who make up about 95 per cent of mobile users – to pay taxes separately over and above a plan MRP might prove controversial and lead to churn.

Nitin Soni, senior director at the global rating agency, Fitch, backed the view, saying such a move “would be an unfair and non-transparent way to indirectly ring in a headline tariff hike, and might prove tough to implement as there is no global precedence, and incumbents, particularly Vi, could risk further customer losses.