Tariff Hike Expected in 2023: Fitch Ratings Analysis

Fitch Ratings anticipates a potential increase in tariffs by telecom operators in 2023, citing a focus on profitability among service providers. Here’s a breakdown of their analysis:

Need for Tariff Increase

The rating agency highlights Vodafone Idea, the third-largest telecom operator, as particularly needing to raise tariffs. According to Fitch, Vodafone Idea’s earnings before interest, taxes, depreciation, and amortization (EBITDA) generation falls short of meeting finance costs and adequately investing in capital expenditure. This suggests an imperative for tariff adjustments to enhance profitability.

Past Tariff Revisions

The last round of tariff revisions by Indian telecom operators occurred in late 2021. Fitch’s analysis indicates a shifting landscape, with India being the sole market exhibiting an improving outlook compared to two markets in 2022 (India and Malaysia). Meanwhile, Sri Lanka’s outlook is noted to be deteriorating. Fitch predicts ongoing consolidation in most markets, as weaker participants face the choice of acquisition or decline.

Market Dynamics in India

Indian telecom operators maintain some of the lowest monthly average revenue per user (ARPU) globally at USD 2.5, alongside the highest monthly data usage at 20 GB. Market leaders Reliance Jio and Bharti Airtel are expected to consolidate their market share, capturing 80-85% of revenue among private telecom operators during 2023-2024, compared to 81% in 2022. Bharti Airtel is forecasted to retain a 35% share of active subscribers, while Vodafone Idea may continue to lose market share due to its precarious financial position.

Impact of AGR Deferment

Fitch’s report also addresses the government’s measures regarding adjusted gross revenue (AGR) deferment and spectrum dues. The decision to defer AGR and spectrum dues for four years, along with prospective exclusions of non-telecom revenue from AGR definitions and the abolition of spectrum usage charges in recent auctions, is expected to bolster telecom operators’ cash flow.

In conclusion, Fitch Ratings’ analysis underscores the potential for tariff increases in 2023, driven by considerations of profitability and financial sustainability within the telecom sector, particularly for operators like Vodafone Idea.