The hike in prepaid tariff by telecom operator Bharti Airtel was a “much-needed step towards healing the profitability and the returns profile” of the telecom sector, CRISIL Ratings said on Monday.
Airtel will raise prepaid tariff by around 20 per cent, which will come into effect from November 26. As per the ratings agency, this revision in tariffs will enable telecom companies to invest in 5G mobile services over the medium-term.
“Telecom isa capital-intensive sector, because it requires continuous technological upgradation. The key players had already invested Rs 5 lakh crore between fiscals 2017 and 2021 to roll out 4G services. Telcos would need to invest at least Rs 70,000 crore at the 5G spectrum auction likely to be held next fiscal if the bidding is prudent,” the ratings agency said.
Indian telecom operators, the rating agency claimed, have among the lowest ‘average revenue per user’ (ARPU) per month in the world and subdued return on capital investment, despite having second-highest average data traffic per user.
Assuming other telcos follow suit on tariff hike coupled with the rising data consumption, the current hike should increase the sector’s ARPU by 15-20 per cent to Rs 155-160 next fiscal from Rs 135 last fiscal, and the return on capital to 7 per cent, it added.
“Given the high operating leverage of the sector, the current tariff hike will lift the sector’s EBITDA by 40 per cent to more than Rs 1 lakh crore in fiscal 2023 as compared to fiscal 2021. The last industry-wide tariff hike in December 2019 had raised the sector’s ARPU by 15 per cent and improved its EBITDA by 35 per cent to Rs 72,000 crore in fiscal 2021,” it said.
READ MORE: Airtel announces 20-25 per cent tariffs hikes for prepaid offerings
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