As recently as a month ago, the future of two of India’s three remaining private telecom players—Vodafone Idea Limited (VIL) and Bharti Airtel—was in doubt. Slapped with retrospective payments of Rs 53,000 crore (~$7.3 billion) and Rs 35,500 crore (~$4.8 billion), respectively, by the Supreme Court—in line with a broader definition of what constituted taxable revenues—VIL and Airtel were living on borrowed time. The only winner in all of this was Reliance Jio, which is owned by the richest man in Asia, Mukesh Ambani.

Unlike its competitors, Jio was hit with a much smaller payment. Around Rs 60 crore ($8.3 million), since it only came into existence in September 2016. Already the undisputed market leader in terms of revenue despite being a relative infant in the space, Jio stared at one of two favourable outcomes:

1) A virtual monopoly if both VIL and Airtel collapsed.

2) A duopoly with Airtel if VIL, hit hardest by the retrospective dues and already heavily loss-making, failed.

Neither of those happened. Instead, the government intervened.

While the SC-mandated payments weren’t scrapped or deferred, the government gave ailing telcos a lifeline. It put a two-year moratorium on spectrum-related payments—essentially, temporary relief amounting to Rs 42,000 crore (~$5.8 billion) for the beleaguered telecom space.

Buoyed by the reprieve and needing to turn things around, both VIL and Airtel acted swiftly. They announced they would increase tariffs as of 2 December. At the time, telecom tariffs in India were the lowest in the world. Reliance Jio has also followed suit by announcing tariff hikes of its own.

The increased tariffs will be a huge boost to the financials of all three telcos. It is imperative to increase tariff rates by 10-20% for operators to survive, industry and government officials said unanimously.

Overall, the tariff hikes will boost the industry’s annual revenue and EBITDA (earnings before interest, tax, depreciation and amortisation) by Rs 53,000 crore (~$7.3 billion) and Rs 42,000 crore (~$5.8 billion), respectively, according to Emkay Global Financial Services.

While all of this may seem like a win for VIL and Airtel, who have a chance to turn their fortunes around, Jio remains the biggest winner. Because while it has benefited immensely from low tariffs—it crashed industry tariffs with its cut-throat pricing to gain users since its launch in 2016—it needed this increase. Badly.

According to a senior analyst and sources close to the company’s management, the prevailing tariffs before the hikes were virtually unsustainable. 

"Operators announcing tariff hikes signals that price power is back in the market,"

—ROHAN DHAMIJA, PARTNER, ANALYSYS MASON

“No operator can survive on these (previous) tariffs,” said a former senior official with Trai, India’s telecom regulator.

AUTHOR

Pratap Vikram Singh

Pratap is based out of Delhi and covers policy and myriad intersections with the other sectors, most notably technology. He has worked with Governance Now for seven years, reporting on technology, telecom policy, and the social sector.

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