Indian Telecom Sector Braces for Significant Tariff Hikes by 2025

The Indian telecom industry is poised for a potential tariff hike exceeding 15% by late 2025, per IIFL Capital. While essential for financial stability, especially for Vodafone Idea, entry-level plans may not be affected to protect low-income users. Regulatory measures and market dynamics influence this strategic move.

The Indian telecom sector is on the cusp of another significant tariff hike, projected to surpass 15%, by the end of 2025, according to a report by IIFL Capital. Despite these increases, entry-level plans could remain unaffected, indicating a strategic emphasis on maintaining affordability for low-income consumers.

This anticipated move is seen as vital for the industry's financial health, particularly for Vodafone Idea (Vi), which strives to cement itself as a viable third competitor in the telecom market. The report maintains that while a considerable tariff hike is likely, entry-level plans could remain stable, signifying the industry's acknowledgment of the need to protect budget-conscious users.

The report sheds light on the ongoing challenges of achieving revenue growth without compromising customer retention. The last tariff hike in July 2024 sparked SIM consolidation and down-trading, affecting revenue expectations for Jio and Vi. Furthermore, subdued spending in other economic sectors has impacted telecom consumers' spending power, further straining the industry's revenue outlook.

Regulatory dynamics add another layer to the scenario, with the Telecom Regulatory Authority of India (TRAI) mandating voice-and-SMS-only packages devoid of data to safeguard affordability for customers with minimal data needs. This move underscores TRAI's concerns about unchecked tariff hikes, particularly for entry-level users.

Despite these hurdles, the report asserts that further tariff hikes are inevitable to secure Vi's financial survival and competitive stance. Relief measures aimed at supporting Vi have only partially eased its financial woes, necessitating increased tariffs to bridge the revenue gap. The report concludes that while mid- to high-tier plans may experience price hikes, entry-level plans might remain unchanged to prevent alienating cost-sensitive users and exacerbating SIM churn.

(With inputs from agencies.)