Tariff hike likely, telcos may seek to raise ARPU by 25% over 6-12 months

New Delhi, Nov 4 : Telecom companies may push their average revenue per user (ARPU) higher by 25 per cent over the next 6-12 months to achieve a sustainable return on capital employed (RoCE) of 10 per cent, said a Crisil report.
The report noted that though operators went for a significant tariff hike in December 2019, intense competition over the past three years, heavy capital expenditure (capex) to roll out 4G networks, and pending AGR liabilities have weakened their balancesheets. Therefore, increase in ARPU will be essential to strengthen credit profiles, it added.
“Telecom companies (telcos) have a compelling reason to push average revenue per user (ARPU) up by 25 per cent over the next 6-12 months to achieve a sustainable return on capital employed (RoCE) of 10 per cent, given their abysmally low returns at present and increased liability on account of adjusted gross revenue (AGR) dues,” the report said.
Tariff hikes, rising 4G adoption and increasing data consumption by adopting content-led bundled pricing strategies could help boost ARPU growth.
“That could, in turn, beam up profitability, which will also help telcos invest in 5G networks over the medium term. Had the AGR liability not panned out as it did, the tariff hikes undertaken in December 2019 could have improved the industry’s RoCE to 7 per cent in fiscal 2021 and to 9 per cent in fiscal 2022, from lows of 3 per cent in fiscal 2020,” it said.
With the Supreme Court’s final judgement on the AGR case in place, telcos have to bear AGR liabilities of Rs 1.15 lakh crore, which is expected to erode the benefits of the tariff hikes implemented last fiscal and bring the RoCE back to 4-5 per cent this fiscal, a Crisil estimate showed.