Reliance Jio, Vodafone Idea and Airtel: Why these telecom firms are raising mobile tariffs at the same time

What we know about the tariff increases and what’s behind them.

Is it a long-term truce or a temporary ceasefire? That’s what telecom sector analysts, shareholders – and customers – are asking after news over the last three days that India’s big three mobile network providers, Vodafone Idea, Reliance Jio, and Bharti Airtel, are all planning to raise tariffs in December.

Vodafone and Airtel announced their proposed tariff hikes within minutes of each other on Monday, sending their otherwise-languishing share prices up a ladder. And then on Tuesday, Mukesh Ambani’s Reliance Jio issued a statement saying it will “take measures including appropriate increase in tariffs in the next few weeks in a manner that does not adversely impact data consumption or growth in digital adoption and sustains investments”.

Reliance Industries shares also spiked after the announcement, and RIL may well become the first Indian company to cross the Rs 10 lakh crore mark in market capitalisation. As of Wednesday afternoon, it was at Rs 9.9 lakh crore, already making it the first to pass the Rs 9.5 lakh crore notch on the yardstick.

But what explains all the sudden moves?

Background/Battleground

India, with its millions of mobile phone users, has been a battleground for the past three years. While telecom has been a keenly contested industry for several decades now, the skirmishes turned into what seemed like a fight-to-the-death when Mukesh Ambani’s Reliance Jio entered the game in 2016 promising top-notch services at rock-bottom prices. For much of the first year, in fact, almost everything on Jio was free.

Three years later, Jio is undoubtedly the leader of the pack even though it is second in terms of subscriber market share, behind Vodafone Idea and ahead of Bharti Airtel. That’s because it has reached that No 2 position in under three years, and is turning a profit, even while the other two major brands declared combined losses of Rs 73,000 crore in the September quarter, among the worst in Indian corporate history.

Those numbers are only the latest in the roller coaster that has been India’s telecom industry, which in some ways mirrors the development of the Indian economy following the liberalisation in the early 1990s. The spread of mobile phones and SIM cards in the 2000s was followed by the 2G spectrum scam at the start of the 2010s, which saw many licence canceled and the exit of a number of big international players.

The entry of Jio in 2016 again completely upended the market, with unprecedented low or free tariffs propelling Mukesh Ambani’s company to massive user growth in an extremely short period of time – forcing Vodafone and Idea to merge and others to exit the sector.

Then, this month, the Supreme Court arrived at a decision in a 16-year-old dispute about how to calculate licence fees and other charges for telecom operators. The verdict sided with the Department of Telecom, which meant that both Vodafone Idea and Airtel would have to cough up around Rs 40,000 crore.

Soon after, both the companies made suggestions that the charges could affect their survival. Vodafone in particular, which also had a difficult battle over tax with the Indian government, with its Chief Economic Officer saying it may no longer be a going concern before walking back his remarks.

The tariff hikes might go some way towards mitigating the shaky business prospects of both Vodafone and Airtel, and Jio’s decision to come onboard suggests that it will not engage in further price gouging – possibly because it expects regulatory action to set a floor for tariffs.

What will the new rates be?

We don’t know yet. Vodafone has said it will raise rates starting December 1, Airtel said its tariffs will go up in December, and Reliance Jio said its measures will be taken in the “next few weeks.” Reliance already made a big change last month by breaking a promise to never charge its customers for voice calls. It blamed that u-turn on the regulator’s decision to keep connection charges for voice calls between networks, which you can read about here.

Some have speculated that Vodafone bills will rise by 10%, while Airtel’s might be a bit lower than that because the average revenue it earns per customer is already on the higher end. The telecom companies are expected to put out their new tariff rates over the next few weeks.

What are the implications of these moves?

No monopoly for now: The tariff increase, corresponding share price spikes and the government’s insistence that it isn’t looking to squeeze the companies for money right now might give Vodafone and Airtel some time to stabilise their business. This means that, at least for the moment, the concern that India’s commercial telecom business (not counting BSNL and MTNL) would be down to a Reliance Jio monopoly has been averted.

  • Business environment: If Vodafone, a British company with interests all over the world, exited India after pouring cash into the country for a whole decade, it would send a seriously negative signal about the enviroment for business – at a time when the government desperately needs foreign investment to help prevent India’s slowdown from getting worse. This is connected to the earlier point about the fears of a Jio monopoly, with foreign observers noting how Reliance somehow seems to comfortably navigate every regulatory or judicial hurdle – which might deter any foreign company that is considering competing in the same market as a Reliance firm.
  • Bad business practices: Not everyone believes the government should step in to protect Airtel and Vodafone. Some have argued that their current plight is of their own doing: Spending too much on spectrum, not adapting to a world in which data matters more than voice, using lobbying efforts to keep others out of the industry and then succumbing to genuine competition. From this perspective, the government’s shield only excuses the bad decisions these companies have made over the years, purely from the aim of preventing a monopoly.

About the Author: Priyanka Sharma

Hi! I'm Priyanka Sharma and I'm a writer, blogger, and author. I found blogging to be a great medium for sharing my favourite things with the world. I have a passion for writing and dream that someday I'll reach a wider audience and show what I can really offer.

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