Vodafone Idea, Airtel announce tariff hikes, will Reliance Jio follow?

Jio brought down data tariffs by over about 96%

Hours after Vodafone Idea announced that it would increase tariffs from next month to tide over acute financial stress, rival Bharti Airtel announced it would follow suit. The two companies have traditionally kept their prices in sync.

The move comes in the wake of an unexpected Supreme Court judgment that directed these companies to shell out what will eventually amount to about Rs 90,000 cr as ‘government’s share’ of their revenue over the last two decades.

The payment threatens to drive the two players — particularly Vodafone Idea — to bankruptcy, and has led to calls for government assistance and reforms in taxation practices with regard to the telecom industry.

In response to such calls, Reliance Jio — the biggest telecom player by volumes — had asked why these players are offering cheap calling and data plans if they were facing such a dire financial situation.

“..despite..the so-called financial stress, these service providers have chosen to continue with their below-cost tariffs, especially when there is no competitive pressure compelling the continuation of these tariffs,” Jio had alleged in a letter to the government earlier this month, in an apparent suggestion that they should increase prices.

Today’s moves seem to be a response to the question.

The exact quantum of increase in tariff has not been revealed, but it likely to be around 15%-20%.

“The telecom sector is highly capital intensive with fast changing technology cycles that require continuing investments. It is, therefore, extremely important that the industry remains viable to support the vision of Digital India,” said Bharti Airtel.

“Accordingly, Airtel will appropriately increase price offerings in the month beginning December.

“While continuing to provide affordable tariffs to customers, it would balance the needs of the company to remain viable and thereby continue to invest in the much needed digital infrastructure and maintain the quality standards required by our customers,” it added in a brief statement on the proposed increase in tariffs.

Earlier in the day, Vodafone Idea too had issued a similar statement.

“The acute financial stress in the telecom sector has been acknowledged by all stakeholders and a high level Committee of Secretaries (CoS) headed by the Cabinet Secretary is looking into providing appropriate relief.

To ensure that its customers continue to enjoy world class digital experiences, Vodafone Idea will suitably increase the prices of its tariffs effective 1 December 2019.”

It is not known whether Reliance Jio too will increase prices. The company had, less than a month ago, increased voice call charges incorporated into its voice+data plans.

This was done by removing the ‘free, unlimited calling’ facility, and putting a limit of around 1,000 minutes for off-network calls for its popular, three-month recharge scheme costing around Rs 450.

The move is unlikely to have bothered most of its customers, but would have hurt heavy voice users.

It remains to be seen if Jio would now increase prices for its data offerings, given that it has vowed that voice will always remain free — a promise that was reiterated even as it put in the recent caps on calls.

Jio is credited with bringing down data charges by around 96%, spurring the consumption of video over mobile networks and making data accessible to tens of millions of Indians.

Whether Jio too increases its pricing, following the hikes by Vodafone Idea and Airtel, depends on whether it believes that such an increase will lead to higher revenue, or whether it fears that such an increase will discourage consumption and lead to lower overall revenues.

Unlike other industries, the incremental expenditure for a telecom player to deliver data via an already established network is close to zero, and a company like Jio cannot save much by way of running costs even if data consumption falls to half of what it is now — unless Jio is interested in dismantling its existing towers and infrastructure to save leasing and fuel charges.