Given that Bharti’s prepaid customers account for nearly 95% of its total subscriber base, what could this tariff hike mean in terms of an ARPU as well as overall revenue addition?
This will definitely lead to an ARPU improvement. It is difficult to calculate immediately how much the ARPU improvement will be there but if I were to look at the overall revenue split for Bharti Airtel, in the wireless business 75- 80% of the revenues are generated by the prepaid business because although post-paid has a lower subscriber base, the ARPUs tend to be much higher there. From that perspective, around 80% of the revenues are generated by the prepaid business.
The average tariff hike is in the range of 20-25%. The entry level has moved up from Rs 79 to Rs 99. The other packs are seeing Rs 40 tariff hike across the board. From that perspective, the ARPU improvement should be quite significant in the forthcoming quarter.
How much it will trickle down remains to be seen because it is a function of multiple things but I can say that we should see an ARPU improvement in the vicinity of 6-7% immediately in the next quarter which is quarter four and thereafter we should see further improvements coming through. So clearly the tariff hike is a significant one that Bharti has taken and it should lead to significant improvement in ARPU and as well as the cash flows in the future.
There are some first cut estimates that are coming in saying that the ARPU. The average revenue per user post this 21% average hike will be around Rs 183. But obviously it is an educated guess. It is only a matter of time before Vodafone-Idea as well as Jio will also announce price hikes. What are the markets factoring in?
The tariff hike is significantly higher than expectations. So we are expecting a 12-13% tariff hike from that perspective. The tariff hike which has come in the range of 20-25% is much higher and that is point number one.
As far as ARPU is concerned, if it goes to Rs 183 immediately in Q4 of FY22, that is going to be very significant as that means we are near Rs 200 ARPU when the business becomes highly profitable and starts generating significant return on equity. It remains to be seen how that will move. Also the competitor should take a tariff hike. It is important that Jio take a significant tariff hike. I believe that should happen.
