Telcos unlikely to raise tariffs until 2024 general elections

“We expect some delay in tariff hikes amid the recent rise in competitive intensity, which may moderate growth in ARPU. We expect a tariff hike by FY25,” said analysts at Emkay India Equities Research, even though they noted the need for an increase in tariffs since telcos were not earning the required rate of return and would have to recover the investments made towards implementing 5G networks. A moderate tariff hike in the near term is unlikely to ease the cash flow troubles of the financially struggling Vodafone Idea Ltd, even though it could benefit the top two companies, Bharti Airtel Ltd and Reliance Jio Infocomm Ltd.

Analysts at Emkay said they have cut their average revenue per user (ARPU) forecast for FY24 and FY25 by 6% and 2%, respectively, and have also reduced their revenue estimate by 7% and 3%, respectively, to account for the delay in the tariff hike.

Kotak Institutional Equities said in a note to clients that it did not expect tariffs to rise until after the 2024 general elections. Higher tariffs may fuel inflation and draw public and political backlash. “As customer engagement picks up, we believe there is a case for a tariff hike, but we conservatively assume tariff hike only after 2024 general elections,” it said. Analysts at IIFL concurred. “With consumption spending likely to remain weak in the near-term and general elections also not far behind, we expect 4G pre-paid tariff hikes only in FY25,” they said. They added that revenue growth in the interim would be driven by subscriber additions and upgrade to premium plans with higher data allowances.

Kotak added that Reliance Jio’s FY24 focus would be towards completing the pan-India 5G rollout by December 2023 from 5G in 2,300 cities currently, attracting higher-value postpaid subscribers .