Will the price hike save telecom companies?
Leading telecom companies Airtel and Vodafone-Idea (VI), burdened by the rising debt burden, have finally shocked consumers by deciding to raise the prices of their prepaid plans. These companies, which are in fierce competition with Reliance Jio, have been forced to pay higher rates by Nilaja, forcing Airtel and VI customers to pay Rs 20 more for the cheapest prepaid plan and Rs 500 more for the most expensive plan. Customers will have to pay 25 per cent more for mobile recharge. Both Airtel and VI have announced a one-day hike, with the new VI rates coming into effect from November 25 and Airtel’s new rates from November 26.
There are 106 crore Forge subscribers across the country, of which 62 crore have Airtel or VI cards, meaning 58.5 per cent of mobile subscribers across the country have been hit by the price hike. Both Airtel and VI have billions of rupees in debt, which they say need to be raised to pay off. Airtel has 35 crore subscribers, while VI has 27 crore subscribers. The number of customers is constantly increasing. At the same time, companies are struggling to stay competitive as Geo is coming up with various schemes. A lot of capital has to be invested to provide the best service to the customers. As a result, the debt burden on Airtel and VI is increasing.
At the end of March 2021, Airtel had a debt of Rs 93.40 lakh crore, while at the end of the new financial year, VI had a debt burden of Rs 1.90 lakh crore. This includes other loans with adjusted gross revenue (AGR). The apex court has given these companies ten years to pay the AGR. Airtel raised Rs 21,000 crore through shares in October, while VI has been trying to raise Rs 20,000 crore since last year. However, they have not received investors. In addition, these companies want to increase revenue per customer. Airtel earns Rs 155 per customer. The company wants to increase this figure to Rs 180 by January. After the hike, Airtel will earn Rs 165 per customer and the company’s revenue will increase. VI’s per capita income is Rs 109, which will rise to Rs 119 after the hike.
Customers will have to pay an extra Rs 20 even after opting for the cheapest prepaid plans of both the companies. If 35 crore Airtel customers opt for the Rs 99 plan, the company could earn an additional Rs 700 crore in 28 days. On the other hand, if 27 crore VI customers plan for Rs 99, they can earn an additional Rs 540 crore in 28 days. This means that companies will definitely make such a profit. In addition, they can get extra income from customers who take more expensive plans.
Mahesh Uppal, an expert in the field and director of Comfort, says that telecom companies in India are facing a number of problems. One is that companies in India have the lowest average revenue per user compared to other countries in the world. Companies want to increase this. Companies have to raise rates to increase average revenue per customer. Competing companies do not raise rates, but the company that raises rates is hit. Also, Indians are not willing to spend a lot of money on mobile plans. They want cheaper plans. High quality service is required at low cost. Now with Airtel and VI raising prices, Geo’s plans are starting to look cheaper. This can hit companies hard. However, as there is not much competition in the telecom sector at present, companies may focus on increasing their average revenue. Reliance Jio has become the cheapest after Airtel and VI hiked rates. So it will be interesting to see how many customers turn to Geo in the near future.