Telcos approach Trai seeking early decision on floor price issue

Telecom players have urged regulator Trai to move forward quickly on the issue of fixing floor price for tariffs, saying the matter is imperative to ensure that the sector is sustainable and in a position to bear the deferred spectrum and AGR dues.

Notwithstanding the nudge from the industry, a latest report by ICICI Securities has said that any huge tariff hike is unlikely for at least a quarter or two.

"Tariff hike is unlikely before recommendation on floor price, as any suo moto tariff hike may work against telecom operators for policy intervention. We do not see any huge tariff hike for at least a quarter or two," ICICI Securities said in a report on Sunday.

Meanwhile, the Cellular Operators' Association of India (COAI) -- whose members include Bharti Airtel, Vodafone Idea and Reliance Jio -- has written to the Telecom Regulatory Authority of India (Trai) seeking an open house discussion on the issue "at the earliest".

"Given the financial pressure on the sector and the fact that ARPU (Average Revenue Per User) and tariffs of the Indian telecom sector are the lowest in the world, floor pricing is imperative to ensure that the sector is sustainable, and is in a position to bear the deferred spectrum and AGR (Adjusted Gross Revenue) dues, while continuing to invest in world class networks and services," COAI said in its letter to Trai Chairman R S Sharma.

The association said the industry looks forward to an early decision by the authority on having floor tariffs for data services.

"While, we acknowledge that the recent situation on account of COVID-19 might have caused some constraints, however the Authority has started conducting the OHD (open house discussion) through online process on various other topics. Accordingly, we request the Authority to kindly hold an OHD on this issue at the earliest," COAI said.

The industry is looking forward to an early conclusion on this important matter with great interest, COAI said, urging Trai for an early decision on the same.

Notably, the regulator had earlier this month, resumed its customary open house discussion (OHD) on pending matters through video-conference but Trai sources had made it clear that the issue of floor price of tariffs is unlikely to be taken up via online mode for now, till the ongoing situation arising from COVID-19 pandemic stabilises.

Given the coronavirus pandemic and the difficulties faced by people, Trai may wait for the situation to stabilise before it proceeds to the OHD stage on floor price issue, a source had said.

Recently, Bharti Airtel CEO, India and South Asia, Gopal Vittal in an earnings call drew attention to the pending floor price issue, saying while the telecom industry has seen some bit of repair, tariffs continue to be "unsustainably low". He exhorted the sector regulator to address the floor price issue "sooner than later".

"We believe that an ARPU of Rs 154 is inadequate to turn a reasonable return on capital as a company and remain hopeful that ARPUs will get to Rs 200 in the short term and eventually to Rs 300 which is where it should be for a business like ours.

"Of course, even at this level of ARPU we believe we will be very well placed to serve all the lower-end customers who may have the capacity to pay Rs 100 or less," Vittal had said.

Airtel said the full impact of the tariff hike undertaken in December 2019 came through in its entirety with no downtrading.

For Bharti Airtel, the ARPU or earning per subscriber -- a key metric for telecom companies -- stood at Rs 154 in March quarter against Rs 123 in year ago period, and Rs 135 in December quarter.

For Jio, ARPU was sequentially higher at Rs 130.6 per month, and the company had said that further impact of December 2019 tariff hike will flow through in the coming months.

On when will be the next tariff hike, the ICICI Securities report said, "Our analysis shows 10 million 4G subs addition increases ARPU by Rs 3. But this is not enough to reach Rs 200 ARPU soon, and requires another round of huge tariff hike".

It said telecom operators will not increase tariff ahead of floor price recommendation as Trai may see this as the industry's ability to take tariff hike without policy intervention, and it may work against telcos on floor price recommendation.

"Floor price can be game-changer policy intervention as this may help the industry reconstruct pyramid structure (from almost flat industry structure now) which will help maximise revenue on mobile services, and reduce risk of pricing retraction. Therefore, we do not see price hike until floor price recommendation is published, which may take another quarter or two at least, in our view," ICICI Securities said.