Ankit Jain, Assistant Vice-President and Sector Head,  Corporate Ratings, ICRA Limited

Dr Mahesh Uppal, Director, ComFirst India

In a major move, all three private telcos have recently announced a hike in their prepaid tariff plans. The tariff hikes, coupled with the latest set of telecom reforms, are expected to steer the sector towards greater financial stability. Further, analysts predict that the tariff hikes are going to significantly impact telcos’ ARPUs, earnings before interest, taxes, depreciation and amortisation (EBITDA) and future investments in 5G. Industry experts share their views on the recent tariff hikes initiated by telcos, and their impact on ARPUs, EBITDA as well as telcos’ 5G investment capacity…

What will be the impact of the recent tariff hikes by telcos on the industry?

Ankit Jain, Assistant Vice-President and Sector Head,  Corporate Ratings, ICRA Limited

The latest round of tariff hikes, wherein telcos have increased their tariffs by around 20 per cent across plans for the prepaid segment, have the potential to increase their EBITDA by 30-35 per cent as well as their cash flow for financial year 2023. The ARPU of operators is likely to increase to Rs 170-Rs 175 in financial year 2023 and is expected to inch closer to Rs 200 by financial year 2024. These hikes complement the recently offered relief package, which is likely to improve the credit profile of the industry and provide headroom for technology upgradation to 5G.

Over the last few mon­ths, the industry has witnessed some structural changes, including a series of reforms and relief measures offered by the government, accompanied by a tariff hike of around 20 per cent across all prepaid plans.

ICRA estimates that the moratorium offered by the government under the relief package will result in an annual cash flow breather of Rs 370 billion-Rs 400 billion for the industry over the next three years. Further, the Department of Telecommu­ni­cations has released a sizeable quantum of bank guarantees (BGs) of the telcos to­wards licence fee and spectrum usage ch­ar­ges, after the government slash­ed the BG requirement by 80 per cent un­der the relief package. This will improve the fin­ancial flexibility of telecom operators going forward.

Dr Mahesh Uppal, Director, ComFirst India

The companies, especially Airtel and Vo­da­­fone Idea Limited, will welcome the inc­rease in tariffs. For Jio, the new tariffs are a bonus. I do not expect much impact on urban usage. However, this will stress low-income and rural customers more and hurt their data usage. We can expect fewer people to retain multiple SIMs.

What trends do you foresee in telcos’ ARPUs and EBITDA?

Ankit Jain

Telecom operators announced the much-awaited tariff hikes, across prepaid plans. The hike in the post-paid segment is likely to follow soon. These hikes have the potential of increasing the industry ARPU to ar­ound Rs 200 by financial year 2024, which will translate into improving the operating metrics as well as overall credit profile of the industry.

ICRA expects the industry EBITDA to improve to around Rs 1.3 trillion in financial year 2023, with the return on capital employed (RoCE) at around 7 per cent. While debt/EBITDA is estimated to rema­in elevated at around 4.6x during the financial year 2023, it is likely to improve to ar­ound 3.5x in the financial year 2024. Mean­while, the interest coverage, which is likely to remain moderate at 2.7x during financial year 2023, will improve to 3.4x during fin­ancial year 2024. Elevated debt levels continue to be the Achilles heel of the industry, and consistent impro­ve­ment in cash flow generation will remain the key to organic deleveraging.

Dr Mahesh Uppal

We could expect a 25-30 per cent increase in ARPUs and EBITDA, based on analysis by other specialists.

How will telcos’ investment capacity in 5G be impacted?

Ankit Jain

The tariff hikes also pave the way for an investment chest, which will be available for technology upgradation to 5G as the telcos would be required to invest Rs 1.5 trillion-Rs 1.7 trillion in 5G, including spectrum purchases, over the next two to three years. While technology upgradation is imminent, the industry is in the process of a transformation from being a plain vanilla voice and data service pro­vider to more of a technology and content-driven industry, and a leaner balance sheet will play a major role in this transformation.

Dr Mahesh Uppal

I believe the ARPU increase will certainly help raise revenues, which can be invested in 5G spectrum or network equipment. How­ever, the additional revenue will be in­sufficient for mobile companies, which will continue to seek a lower reserve price for the auction of 5G spectrum.