Explained: Is mobile tariff hike by Airtel, Vodafone Idea justified?

Telcos have reduced their tariffs so much that they earn only Rs 75 per user per month, nationally

From the first week of December, Airtel and Vodafone-Idea are expected to raise their tariffs, and users will need to pay more. But is the tariff hike necessary? Telecom companies don’t have too many options.

Almost every Indian has a mobile phone now (chart 1), though all do not use data. This has resulted in an explosion in data consumption (chart 2). An average Indian now uses 10 GB data per month.

This is a direct result of the price war between Reliance Jio and the two incumbents. Telcos reduced their tariffs so much that they earn only Rs 75 per user per month, nationally and across the industry (chart 3), for all the data that we use: From streaming YouTube videos and video calls over WhatsApp. Leading telcos quote their ARPU above Rs 100, owing to their own calculations.

Mobile data has become so affordable that an average Indian pays only 0.6 per cent of his/her monthly income on it (chart 4). But things have been tough for telecom companies: They ended up paying Rs 1 trillion over five years on spectrum charges and licence fees (chart 5). This does not include what Airtel and Voda-Idea need to pay as dues.

Further, for better quality data and voice calls, they need to invest in more towers. India has one tower for nearly 3,000 people, worse than most Asian peers (chart 6).

Tariff hike, however, may not pinch consumers much. A 15 per cent hike would require consumers to pay nearly Rs 15 more per month, but would make company finances more sustainable (chart 7).