The Indian telecom industry is about to witness a dramatic shift, as the nation’s leading service provider, Reliance Jio, has taken the bold step of announcing a significant tariff hike across its prepaid and postpaid plans. This bold move is expected to trigger a domino effect, with industry rivals Bharti Airtel and Vodafone Idea (Vi) poised to follow suit in the coming weeks.
In a strategic maneuver, Reliance Jio has announced a 12-25% increase in tariffs for its mobile plans, both prepaid and postpaid, effective July 3rd, 2024. This marks the first major tariff hike by the telecom giant since December 2021, when it had previously raised prices by 21%.
The latest price adjustments see Jio’s cheapest monthly plan soar from Rs 155 to Rs 189, a 22% jump. Other plans ranging from Rs 209 to Rs 399 have also been hiked by more than 12%. In the postpaid segment, the Mukesh Ambani-led company has raised the tariffs of its Rs 299 and Rs 399 plans by 16.7% and 12.53%, respectively, to Rs 349 and Rs 449.
Jio’s competitors, Bharti Airtel and Vodafone Idea, have long been clamoring for industry-wide tariff hikes, and they are now expected to follow suit with their own price adjustments in the coming weeks.
Bharti Airtel has already announced a tariff hike, effective July 3rd, 2024. The telecom giant has stated that the mobile Average Revenue per User (ARPU) needs to be upwards of INR 300 to enable a financially healthy business model for telcos in India. Airtel has assured that the price increase on entry-level plans will be “very modest,” less than 70 paise per day, to minimize the burden on budget-conscious consumers.
According to industry analysts, Vodafone Idea (Vi) is also likely to announce tariff hikes in the near future, though the quantum of the increase remains to be seen. If Airtel and Vi were to match Jio’s hike, the industry could witness a collective increase in customer spending on telecom services by approximately Rs 475 billion annually, assuming minimal subscriber churn or downgrading.
The tariff hikes are expected to have a significant impact on the pace of 5G adoption in India. Both Jio and Airtel have been offering 5G services at 4G prices, but the new pricing structure could alter this strategy.
At the end of the fourth quarter of 2024-25, Jio had 108 million 5G customers, while Airtel had 72 million. The tariff increase is likely to influence the migration of users to the 5G network, as the pricing gap between 4G and 5G services narrows.
The tariff hikes are expected to translate into incremental revenue and EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) gains for the three private telecom operators. Analysts estimate that the revenue could increase by approximately Rs 400 billion (18%), while EBITDA could rise by around Rs 300 billion (25%).
Interestingly, Jio’s decision to raise tariffs comes after a relatively long period of stability, as the company had not hiked prices since December 2021. Analysts note that the need for Jio to raise tariffs was equally, if not more, pressing, given its larger 5G investments and the moderation in its Returns on Capital Employed (RoCE) and Free Cash Flow (FCF).
The tariff hike by Jio marks a significant shift in the industry dynamics. Unlike its previous behavior, where Bharti Airtel and Vodafone Idea had taken the lead in raising prices, Jio has now assumed the role of the trailblazer, a move that industry experts see as a positive sentiment for the telecom sector as a whole.
The impending tariff hikes across the industry are likely to have a noticeable impact on Indian consumers’ wallets. However, the telecom operators argue that the increases are necessary to enable substantial investments in network technology, spectrum, and a modest return on capital. As the telecom titans clash, the Indian market braces for a seismic shift in the industry landscape, with Jio’s bold move setting the stage for a new era of competition and strategic maneuvering among the key players.
