“There ain’t no such thing as a free lunch”, or TANSTAAFL, is a concept that originated in the USA in the 19th century. American saloons sold drinks while offering complementary food. The catch was that the food was steeped in salt, making patrons thirstier.
Nearly a century, and an ocean removed from its origins, TANSTAAFL is playing out again. In India’s telecom sector. The country’s telecom operators, starting with Reliance Jio in 2016, opened the freebie floodgates. Tariffs hit all-time lows, subscriber numbers soared, and data consumption grew in leaps and bounds.
But the telecom business, between high spectrum costs and recurring investments in networks, is a high-debt industry. Only operators who can service their mountains of debt survive—a tough task thanks to the low tariffs. The industry’s average revenue per user (ARPU) has plummeted from Rs 126 ($1.71) in the year ended March 2016 to Rs 73 ($0.99) in the year ended March 2019. Operators’ earnings from selling data have shrunk in the same period—1 GB of data, which netted them Rs 184.32 ($2.5), now only earns Rs 6.96 ($0.09). This has turned telcos’ balance sheets red, leaving them struggling to keep the lights on.
Last year, the sector reached its breaking point. Operators openly admitted that the tariffs were not enough to recoup their costs. This was made worse when the country’s apex court ruled that operators owed tens of thousands of crores in adjusted gross revenue (AGR) dues dues The Hindu SC upheld DoT's move to recover adjusted gross revenue (AGR) of about ₹92,000 crore from operators Read more . Pushed to the brink, the sector implemented its first tariff increase—a 30% hike—in three years.
The increase, while welcome for the sector, was a bandaid on a bullet wound. Companies continue to bleed. As he launched Vodafone Idea’s rebranding to Vi on 7 September, company CEO Ravinder Takkar stated that operators continue to offer services for less than the cost of providing them. He indicated that Vi may not shy away from another tariff hike. another tariff hike. Business Standard Vi CEO said that the current tariffs are unviable Read more Takkar is targeting an ARPU above Rs 200 ($2.72) in the near term. The goal remains to cross the Rs 300 (~$4) mark.
Vi’s rivals are also keen on hiking tariffs. In August, Bharti Airtel chairman Sunil Bharti Mittal, too, stressed stressed Mint Sunil Mittal hinted at an increase in prices in the next six months Read more that ARPU should move towards the Rs 250-300 ($3.4-4) range.