Bharti Airtel and Vodafone Idea to boost their average revenue per user (ARPU) and focus on profitable customers have rolled out minimum recharge plans for users.
A host of sub-Rs 100 prepaid packs have been introduced by telecom companies such as Rs 35, Rs 65 and Rs 95, with a 28-day validity period. This states that users who do not recharge their plans would see outgoing calls blocked in 30 days and incoming ones in 45 days.
The aim of the move is to weed out customers from their network who are not generating any revenue for them. When in September 2016 Reliance Jio Infocomm entered the market with competitive prices, it forced other telecom operators to move towards the drop rates, which in turn took a chunk out of their top line and profitability.
“Airtel and Vodafone Idea seems to be finally saying enough is enough by introducing minimum recharge plans across India to boost ARPU and don’t seem to mind losing some freeloaders who were anyways not generating any cash for them.” –Sanjiv Bhasin, Executive Vice President, Markets & Corporate Affairs, IIFL
Bhasin further mentioned that both Airtel and Vodafone Idea appears to be “focusing on the middle and upper-tier customers who don’t typically switch operators overnight like the base level value hunters.”
Analysts told that Jio’s entry also led to the amalgamation of the domestic telecom industry into three large private players — Vodafone Idea, Bharti Airtel and Reliance Jio that made it an ideal market situation for pricing power to return over time. It is explained by the move that tariffs may start going up in the upcoming quarters.
“Tariffs may start edging up by the third/fourth quarters of FY19 itself, culminating in pricing power making a gradual comeback.” –Rohan Dhamija, Partner and Head of India and the Middle East at Analysys Mason
Last week, Gopal Vittal, Airtel’s Chief Executive Officer explained that by the third quarter of the current fiscal year the company expects prepaid ARPU to start improving on account of the minimum recharge plans. Further, he mentioned that this could lead to a reduction in the company’s selling, general and administrative (SG&A) expenses.