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Here’s why Airtel is increasing tariffs on prepaid plans by 25%

Competitive pricing in India has led to internet access being cheaper than anywhere else in the world but that is set to change.

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Airtel will increase its mobile tariffs for prepaid plans from November 26, the company has announced in a press release. The revised prices indicate that the tariffs for all prepaid plans are being increased by 20-25%.

“Airtel has always maintained that the mobile Average Revenue Per User (ARPU) needs to be at Rs 200 and ultimately at Rs 300, so as to provide a reasonable return on capital that allows for a financially healthy business model.” – Airtel Press Release

The telecom sector in India has been struggling with debt issues due to nearly half a decade of competitive pricing. Reports suggest an industry-wide consensus to raise telecom prices, thereby increasing the cost of internet access in India.

Why is Airtel increasing tariffs?

In the press release, the company said that higher tariffs were required to support the networks and spectrum, and to give the company “the elbow room to roll out 5G in India.” Before the tariff hike, the company also conducted a rights issue to raise capital. Airtel Chairman Sunil Mittal explained why Airtel needed capital on the investor call:

  • Government levies: Mittal bemoaned the lack of government support to the industry as 35% of telecom revenues is earmarked for government levies. “We expect the government to respond by having lighter touch regulations and making life simple for telecom companies. The levies are far too high,” Mittal urged.
  • 5G rollout: The company is also in need of capital for the upcoming 5G auction. Mittal claimed that 5G will become a reality in India by next year in key cities and will cover most of India by 2024. “Auction of spectrum is likely to happen early next year,” he explained. “We hope pricing on spectrum is made attractive by the government to ensure India benefits from a robust 5G ecosystem”. He said that 5G Capex should not be “significantly higher” as compared to 4G.
  • AGR dues: Mittal said that the company is bothered by the average gross revenue (AGR) dues. “The load of AGR, load of spectrum payments have indeed created an extraordinary load of debt. We are comfortable for ‘business as usual’ but we want to lower our debt leverage and, therefore, have access to capital, as and when we need, for growth,” he said.

Mittal said that the telecom sector had relied on minimal price increases for too long, and a healthier revenue model was now necessary:

We are happy to take small baby steps which could even be the first in the industry. We will not shy away from doing it. Some of our new plans are a testimony to the fact that we have run out of patience and we have taken the first step. – Sunil Mittal

Related: We Have Run Out Of Patience And Will Not Shy Away From Raising Tariffs First: Airtel Chairman Sunil Mittal

The cost of internet access in India

  • ARPU: According to TRAI’s latest performance report, the average revenue per user for prepaid subscriptions is Rs. 98.75. Airtel’s increase in tariffs for prepaid plans will lead to a rise in this figure.

TRAI performance report Apr-Jun 21

  • Per-GB cost: Notably, India’s cost per GB has also seen a dip in the past two quarters. With an industry-wide increase in prepaid data plans, that figure is set to increase as well.

TRAI performance report Apr-Jun 21

The competitive pricing in the telecom sector meant that internet access in India is cheaper than almost anywhere else in the world. That is set to change now with telecom companies targeting higher revenues. “This industry needs to be at Rs 300 ARPU eventually. We have seen the worse now in terms of tariff wars and ARPU contraction,” Mittal said on the investor call, indicating that tariffs will only rise from hereon.

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Reporter at MediaNama. Email: nishant@medianama.com

MediaNama’s mission is to help build a digital ecosystem which is open, fair, global and competitive.

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