Jio, Airtel, Vodafone could double profits by 2021 riding on mobile tariff hike: CRISIL

Reliance Jio, Airtel, and Vodafone-Idea are expected to grow the industry's revenues and profits significantly in the next two years, says credit rating agency CRISIL.

Earlier this month, India's top telecom operators hiked tariffs for data and voice calls by almost 50 percent, leading to collective disappointment among millions of mobile users, especially those with prepaid SIMs.

After all, this is the first time since September 2016 (when Reliance Jio launched) that operators have dared to increase tariffs.

While average users continue to be unhappy, this move could improve telco revenues and operating profits significantly, also bringing down overall debt in the telecom sector.

A study by credit rating agency CRISIL indicates that Airtel, Vodafone-Idea, and Reliance Jio could double their operating profits by FY21.

Every Re 1 added to telco ARPUs results in a Rs 1,000 crore increase in the operating profit of the industry, states the report. (ARPU stands for Average Revenue Per User and is considered to be a key metric in the telecom sector.)

CRISIL further estimates that ARPUs will go up by 25 percent as a result of this tariff hike. This means that each user will be paying more for their mobile activities.

Consequently, in the next two years, the industry's operating profits are projected to reach Rs 60,570 crore from the current Rs 29,450. Revenues too are slated to increase from Rs 1.29 lakh crore in 2019 to Rs 1.69 lakh crore in 2021.

What tariff hikes mean for users

Interestingly, analysts believe that the tariff hike will curb subscriber additions.

It could even stop prepaid users from buying multiple SIM cards to avail freebies doled out by operators until recently. Subscribers could even down-trade i.e. opt for cheaper subscriptions as opposed to their current plans.

Sachin Gupta, Senior Director, CRISIL, explained, “The latest tariff hikes would accelerate SIM consolidation and curb subscriber additions and hence our calculation factors in no growth in subscriber base. The crucial part now is pricing discipline and extent of down-trading from current plans. That will determine the kind of net gains that telcos will make in the near-term."

While tariff hikes are likely to bring cheer to telcos whose losses run into thousands of crores, several ancillary industries that were benefitting from India's mobile data revolution stand to be affected. These include video and audio streaming services, user-led content curation apps, and other platforms that incur heavy data usage.

However, the full impact of the telecom tariff hike can only be ascertained by the end of this financial year (March 2020).

Until then, it's a wait-and-watch game!

(Edited by Saheli Sen Gupta)


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