Telecom tariff hike will not have major impact on data usage, video consumption: Experts
A recent Crisil report suggested that the tariff hike along with ongoing customer upgrades will lead to an estimated 20% improvement in the average revenue per user (ARPU)
The report also noted that improving profits along with moratorium on government dues would provide telecom companies room to invest an estimated Rs 1.5-1.8 lakh crore for 5G services over the current and next fiscals, and improve their return on capital employed (RoCE). The tariff hikes will also support their credit profiles notwithstanding higher investments.
“Recent tariff hikes and ongoing customer upgrades could push the sector’s ARPU by ~20% to Rs 160-165 next fiscal from ~Rs 135 in the last fiscal. ARPU growth will lead to non-linear growth in profitability due to the high operating leverage of the telecom sector. The sector’s EBITDA is seen surging ~40% to ~Rs 1 lakh crore next fiscal from Rs 72,000 crore in fiscal 2021. Yet RoCE will be moderated at 7-8% because of high capital intensity and adjusted gross revenue dues," said CRISIL Ratings Director Nitesh Jain.
Media & Entertainment (M&E) industry experts believe that the tariff hike won't have an impact since data has become a utility. Moreover, digital video consumption has become a daily habit among consumers particularly the younger demographics.
"The data price hike will not have any impact on data consumption or for that matter on video consumption. Telecom ARPUs are about Rs 100-125 so even if it is increased by some margin it won't have an impact. Even if low ARPU customers drop out they don't contribute much to the ARPU of Airtel, Jio, or Vi. At an average level, it will only improve the quality of users of these companies," said Kurate Digital Consulting Senior Partner Uday Sodhi.
"If ARPUs go up, the quality of service will also improve. This is a good strategy to increase ARPUs. You might have 4 or 5% of the consumers who might slow down their consumption. India anyway has the lowest data and telecom tariffs in the world. That stage where customers will drop out because of a price hike is gone. Data has become a utility and there will be no impact on any of the digital services," he added.
According to a senior executive with experience in media and telecom, the data price hike will not have a major impact on OTT players. He added that there might be a little bit of an impact on the consumption of some big properties or smaller OTT players. "Big OTT players will not get impacted because they don't service the consumer base which will feel the pinch of price hike," the executive said.
Aqilliz Chief Business Officer Rajeev Dhal, who was with ZEE5 earlier, believes that data now comes under the category of addiction. "People are addicted to data, therefore, the price hike will not have any impact on data or video consumption. Globally, the per capita consumption of data in India is the highest. The pricing war which we saw few years back was due to intense competition in the telecom industry as Jio was a new entrant in the market and wanted to establish itself. Consumers have never demanded price reduction. Since data has become a utility people will be willing to increase their budget for data packs," he averred.
Dhal also said that the overall user base for OTT platforms won't see a reduction. However, if some consumers downgrade to lower data packs, the time spent might come down. "Even if there is some impact on OTT platforms, the time spent will go down however the user base will remain the same. For example, if someone was spending 50 minutes on a platform that will reduce to 45 minutes. OTT is appointment viewing and not casual viewing. Appointment viewing is the last one to suffer because it is committed viewing," Dhal stated.
The M&E Practice leader with a leading consultancy firm feels that the data price hike will not dent data consumption in the post Covid-19 era since the internet has become a necessity whether it is work from home or study from home.
"Because of work from home and school from home data is looked at as a necessary expense, and therefore, a reduction in usage for entertainment purpose is a bit far-fetched. Data has become a utility thanks to Covid-19. Secondly, the Indian telecom market is highly under-indexed compared to any other market. Third, the bundling that is happening where you get OTT packages at deep discount. For example, Tata Sky offers 10 OTT platforms for Rs 300 per month. Anyway, that is so heavily discounted…I think the fight is more at that level," he stated.
The expert also pointed out that India has the highest data consumption on earth and that will not change even if data prices go up. "Data consumption will not come down due to increase in price. There is a new use case which is coming every day. The price sensitive guy will buy the Rs 85, 95, or 120 pack. Most people don't buy that pack. The customer base which buys data packs upwards of Rs 199 and above will not get impacted due to the price hike," he asserted.
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