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Tuesday 2 June 2020

Airtel, Vodafone-Idea plans turn dearer

While Vodafone-Idea is increasing its tariffs to make up for huge losses, Airtel says the new TRAI rules have necessitated it though the regulator's decision is right



If you are a Vodafone-Idea or Airtel subscriber, you will have to spend more beginning 1 December, whatever be your tariff plans. Vodafone Idea Limited (VIL) and Bharti Airtel on Monday said they were going to increase their tariff plans from 1 December.

Vodafone-Idea’s continuous loss is a big reason behind the hike. The company has suffered the highest quarterly loss of Rs 50,922 crore in the quarter ending September.

The Supreme Court verdict related to the Adjusted Gross Revenue (AGR) of telecom operators did not go in their favour.

Vodafone-Idea said, “The company is going to increase the price of its tariff from 1 December…”

The telecom operator says that mobile data charges in India are among the lowest in the world and the benefits of fast-growing mobile data services are being offered to the subscribers at the lowest price.

Airtel made its plans expensive, too, but said that the Telecom Regulatory Authority of India (TRAI)’s decision was necessary and right.

The ‘use on average revenue’ of Indian telecom operators is the lowest worldwide. Vodafone-Idea’s subscriber revenue is around Rs 105 per month.

Airtel has been continuously trying to increase its revenue per subscriber, but the company has suffered.

In October, Bharti Airtel had said that mobile services tariffs were volatile and that their prices needed to be increased. Companies will be forced to take some important decisions to maintain their userbase and subscriber market.

After the Supreme Court’s verdict on 24 October, the telecom companies will have to pay up to Rs 1.30 lakh crore to the Department of Telecommunications (DoT). For this, the government has constituted a Committee of Secretaries (CoS) so that necessary measures can be taken to relieve and stabilize the tension in the telecom sector.

Vodafone-Idea, which is among the big players in the telecom sector, has beaten Tata Motors with a record quarterly loss history. It incurred a loss of Rs 50,922 crore in the September 2019 quarter as it had to make submissions after the Supreme Court ordered an order to make the company repay the average gross revenue (AGR) dues. According to the company, it has to pay Rs 33,010 crore to the government by 30 September as per the court’s order.

Airtel, Vodafone-Idea and even Jio have no choice

The Indian telecom market has seen a big change in the last few years and customers have benefited from the competition among operators. Reliance Jio has recently announced separate IUC vouchers from its plans. Now Vodafone-Idea and Airtel are also going to announce to increase their tariff plans from 1 December.

This is bad news for the customers but it is necessary for the telecom sector for the sake of bringing stability to the business. Why the market changed rapidly in the last five years and why its impact came as a loss to companies can be understood in a few points.

The data plans available to Indian users are the cheapest in the world. Even when compared to neighbouring countries, Indian users are able to use mobile services at less than one-third of the cost. For example, in India, 1 GB of data costs about Rs 18 while in Pakistan, the data cost about Rs 134 and in Nepal it is Rs 161.

Although many operators have been introducing once in a while separate plans and limited-time plans for the users, that never affected the market share of any. However, since the entry of Reliance Jio in 2016, the telecom sector has been in a tizzy.

Plan to be cheap

Reliance Jio began free voice calling as soon as it stepped into India, for which users were spending the most so far. Instead of focussing on calls, Jio made data the focus. Users started paying for data.

In the data plan, benefits like free calling and SMS were given to the users for the first time. Small companies like Telenor and Aircel suffered because of this and were ejected from the market. That shrunk the competition to the rest of the big operators, with each one trying ‘lowest price, highest benefits’.

Why companies made losses

Before 2016, telecom operators used to charge separately for voice calling, SMS and mobile data. Now they have to depend on a combined plan. While Jio has been steadily increasing its user base, Airtel felt the pressure and tried to balance the price and service. It was at this time that Airtel claimed that it was “the fastest network”. The intention of the company behind this was that users should choose Airtel ignoring the higher expense.

Reliance Jio did increase its user base but it continued to suffer losses in the form of Interconnect Usage Charges (IUC). IUC charge gives a network to another network in the event of an outgoing call. More customers of Jio kept calling on other networks and Jio came under pressure to charge more IUC.

The other companies continue to provide facilities based on their capacity and at least the cost to maintain a place in the market. Thus, the average revenue per subscriber dropped sharply and companies were in a weak position.

What happens next?

Launching cheap plans in the telecom market was the compulsion of operators at one time, now it has become necessary to make plans expensive to cover the losses. Obviously, as a user, you will be unhappy with this, but all operators are now going to make their plans expensive.

It is also necessary to do so, given the market situation and the TRAI playing an important role in it. A committee has been set up by the government to address the volatility of the market. The telecom market will be in a better condition soon but for this, you will have to loosen your purse strings.


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