Tariff hikes key for long-term growth of telecom sector: Birla
The growth of India’s telecom sector depends on higher tariffs, which remain very low despite the increase in December 2019, Vodafone Idea Ltd chairman Kumar Mangalam Birla said. Writing to shareholders in the company’s annual report released on Monday, Birla said the operating environment remained challenging in FY20 due to unsustainable pricing and hyper-competition.
“The telecom industry also witnessed the first round of tariff hike by all operators in December 2019. However, tariffs are still very low, and therefore, pricing revival is critical for the long-term growth of the sector,” he said.
Birla’s statement is on the same lines as that of Bharti Airtel chairman Sunil Mittal, who wrote to shareholders that India still has some of the lowest data tariffs globally and the industry is barely able to cover the cost of capital.
The Supreme Court verdict on adjusted gross revenue (AGR) also added to the financial woes of telecom operators. The Department of Telecommunications (DoT) also intervened to restore the financial health of all operators by way of a two-year moratorium on spectrum fee payments, said Birla. /chk/
“Your company continues to focus on driving 4G penetration to increase average revenue per user (Arpu). Further, your company remains focused on strengthening its position on enterprise services, especially the new and fast-growing segment of IoT and cloud services. All these initiatives will improve revenue and profitability and subsequently strengthen your company’s overall competitive position in the market,” Birla wrote.
After the top court allowed telcos to pay adjusted gross revenues-related dues across 10 years, the Vodafone Idea board on 4 September approved raising up to ₹25,000 crore via equity and debt, with a limit of ₹15,000 crore through either route. Vodafone Idea will take up the proposal at its annual general meeting on 30 September. If the firm raises ₹15,000 crore via equity, it would be about 44% of its market value of ₹34,511 crore—leading to a stake dilution for UK’s Vodafone Group Plc, which holds around 43%, and the Aditya Birla group, which holds 29%.
The Vodafone Idea annual report reiterated the focus on the population, which is rural and new to the internet. The overall teledensity for India as of March 2020 stood at 85.87%, suggesting a proportion of the population is yet to start using mobility services. “This holds true, especially for rural areas where tele-density is still low at 58.5%. If we consider the active subscriber base of 989.1 million (March 2020), the penetration is still around 73.4% indicating a large population base which is yet to adopt mobile telephony services, a clear long-term opportunity for the mobile operators,” said the report.
The company said it has partnered with Home Credit India Ltd, a non-bank lender, for a unique ‘handset and telco recharge’ which is made available as an integrated bundle on loan, an industry first. This was primarily based on the identification of the ‘new to credit’ customers within its own base, with the help of big data analytics. Customers walking into over 25,000 retail offline stores across the country could buy a 4G smartphone on EMI along with a six-month unlimited prepaid plan.
The operator has also partnered with device makers such as Samsung and Vivo for the launch of flagship products with joint advertising, with the objective of gaining a higher share of incremental high-end customers. Following the difficulties in mobilizing customer recharges as noted by the management, the telco deepened its partnerships with popular digital wallets - PayTM, PhonePe and Amazon Pay for cashbacks, making plans more affordable and convenient to recharge, said the report.