The price war among Indian telecom operators, which started with the entry of Reliance Jio in 2016, seems to be entering its last phase now. Putting an end to the long run of virtually free mobile services that Indian users had grown accustomed to, Bharti Airtel and Vodafone Idea have introduced minimum recharge plans for prepaid users, particularly those falling in lower ARPU brackets. The bet seems to be paying off with both telcos reporting an increase in ARPUs. No doubt, this growth has come at a cost with the number of subscribers declining. But this is likely only a short-term concern as it is mostly the non-serious, “missed call” customers that are being weeded out.

Introduction of minimum recharge plans

In an effort to raise their ARPUs, Airtel and Vodafone Idea have introduced various minimum recharge prepaid plans, which fall in the sub-Rs 100 category. These are the Rs 35, Rs 65 and Rs 95 plans, all of which come with a validity period of 28 days. These plans require users to recharge their mobile plans on a regular basis in order to continue using the services, thus effectively ending lifetime free incoming calls. Users who fail to recharge their plans will face the inactivation of their outgoing calls in 30 days and incoming calls in 45 days.

The minimum recharge plans were introduced in October 2018, and the outcome so far has been good, particularly in terms of ARPUs. The plans have been able to reverse the trend of falling ARPUs of the two operators in the recent quarterly results. Voadafone Idea’s blended ARPU increased by 16.3 per cent from Rs 89 during the quarter ended December 2018 to Rs 104 during the quarter ended March 2019. Meanwhile, Airtel’s ARPU increased by 20 per cent sequentially during the quarter ended March 2019.

Industry analysts predict that the ARPU of the two operators is expected to increase by at least 30 per cent  from Rs 88-Rs 100 at present to around Rs 130 by December 2019. In the past, the industry has reported an average ARPU of Rs 180, signalling that users can afford service plans that might be costlier than the current ones. As per the Cellular Operators Association of India, operators can leverage the high buying capacity of users by exploring optimal ways to increase tariffs. The revenue thus generated can be invested in network enhancements. Furthermore, they can devise strategies to charge for applications that are currently available for free.

While the operators’ minimum recharge plan strategy has had a positive outcome in terms of ARPUs, it has also led to a significant reduction in their user base. Vodafone Idea witnessed a subscriber churn of 35 million in the quarter ended December 2018 and another 53 million during the quarter ended March 2019. According to a report by research firm Morgan Stanley, Vodafone Idea’s total subscriber base stood at 334 million as of end March 2019. Airtel also reported a reduction of 48.5 million users during the quarter ended December 2018. However, the loss of subscribers has been restricted to low or negligible revenue generating customers. In fact, the minimum recharge strategy has worked like a double-edged sword, increasing ARPUs while at the same time weeding out non-paying customers. As per industry analysts, the strategy is likely to weed out 50 million low- ARPU users.

Withdrawal of low-value post-paid plans

In order to increase the ARPU from post-paid customers and thus further improve profitability, Airtel has withdrawn its low-value post-paid plans, those that are below Rs 499, across all circles. It has also reduced the total number of plans to four. Airtel has discontinued the Rs 299 and Rs 399 plans along with the Rs 649, Rs 1,199 and Rs 2,999 plans. It now offers just four post-paid plans: Rs 499, Rs 749, Rs 999 and Rs 1,599. The Rs 499 has now become the entry point for post-paid customers, who make up around 5-7 per cent of its over 284 million subscriber base but contribute 20-25 per cent of the revenue.

Earlier this month, Vodafone Idea also withdrew some of its low value post-paid plans. The operator is notifying its customers through messages that their plans have been upgraded. For instance, the Rs 199 plan has been upgraded to Rs 399 plan.

Hike in international roaming prices

In yet another move to increase their revenues, both Vodafone Idea and Airtel have increased the prices of their international roaming packs by as much as 20 per cent. Vodafone Idea is now offering its international roaming plans at Rs 599, Rs 2,999, Rs 3,999 and Rs 5,999. These have been revised from the previous rates of Rs 500, Rs 2,500, Rs 3,500, and Rs 5,500 for the same set of benefits. Meanwhile, Airtel has increased the price of the 10-day international roaming plan for Singapore, Malaysia, Thailand and Australia by 25 per cent to Rs 1,499. It has also increased the price of its 10-day international roaming plan for the US, the UK, Europe, Indonesia and the UAE by 20 per cent to Rs 3,599.

Since this category of users is not too price sensitive, a slight hike in the prices of the plans will not cause any change in the size of the user base. Moreover, this is one market segment where Jio has not made inroads and thus it has remained largely undisrupted as compared to the domestic telecom sector, thus providing Airtel and Vodafone Idea an edge over their main competitor.

International travellers are a highly profitable customer base. They provide the highest return on investment despite their small size, and generate a significant amount of revenue. Given their strategic importance, it is imperative that operators make conscious efforts towards retaining and expanding this user base. As per industry estimates, the international roaming segment has grown at a Compound annual growth rate of around 15 per cent in the past two years, and is expected to grow by another 15 per cent over the next two years.

The way forward

All the changes introduced in the tariff plans have been aimed at tapping high-revenue generating customers. Operators are now focusing on expanding this group of users.

Going forward, experts predict that there will be more such revisions in tariff plans as operators increasingly focus on improving their revenues. According to CRISIL, the telecom industry is looking at a 7 per cent growth in revenue in 2019-20 owing to an estimated increase in ARPU by 11 per cent. Further, the profitability of operators may improve along with the rise in earnings before interest, taxes, depreciation and amortisation margins by 350 basis points year on year to 31 per cent. This growth will be largely driven by higher data usage, the introduction of minimum recharge plans and other changes in the tariff plans.

By Diksha Sharma