Telecom Regulator Requires Huge Will For Implementing Recommendations
Reliance Jio in its response to the consultation paper for floor price suggested Rs 20 per GB while Vodafone Idea was on the higher side with its recommended price of Rs 35 per GB. With the current tariff averaging at Rs 4 per GB and if regulator adopts Rs 20 per GB as floor price, an average user will have to shell out five times more. ICICI Securities believes the regulator “may require huge will” for implementing the changes due to the steep increase in tariff. The firm believes that if the regulator adopts the lowest proposed tariff, it still wouldn’t necessarily translate to huge increase in ARPU for operators as users would downgrade plans based on requirement. However, the bundled plans of 1 GB per day and 1.5 per GB per day would also be set to increase by 60 to 80% under the new proposed tariff. ICICI Securities believes the industry could witness a compound annual growth rate (CAGR) of 16.8% by 2024 to 2025 driven by 19.8% CAGR increase in ARPU. Crucially, the firm believes that the downgrade in data usage would ease congestion on the networks and will improve the realised data speeds for the user. On the other hand, the capacity based capital expenditure for telecom operators would reduce with the downgrade in data usage.
Value Added Services: From Negligible Earnings to Value Added Play
With Reliance Jio proposing charges for value added services, the firm believes that operators are presented with a huge opportunity to earn from a segment that has currently produced negligible earnings. ICICI Securities believes that regulator may not accept the proposed subscription charges on the services as it is “significantly high” and that it may be “restricted to bundled plans.” “For now, we are not factoring-in any upside from these digital services,” ICICI Securities said in the report.
Volume Growth and Revenue Might Finally Have Correlation
The firm said that the operators in the last three years have been offering higher data allowance that “even an abuser on the network will often not find the entire usage exhausted.” If the regular adopts the proposed tariff, ICICI Securities said that the industry structure may get reconstructed with the subscriber paying for his actual needs and requirements. “These tariff plans will leave little room for abusers of the network,” ICICI Securities said. “We will see a lot more correlation to revenue and volume growth compared to past three years.” ICICI Securities said that it prefers Airtel in the telecom space as it is “best positioned to benefit from these changes in the industry.”
