The average revenue per user (ARPU) in telecom is "still far from being sustainable" and the market has the ability to absorb further tariff hikes, which will fix structural issues faced by the sector and enable telcos to generate reasonable returns, Vodafone Idea CEO Ravinder Takkar said on Friday.
In an earnings call after the company's June 2020 quarter results, Takkar said he does not agree with the view that 2G needs to be stopped, since it is a low-cost service still preferred by certain set of users.
He also made it clear that 4G devices and smartphones are not a business that the company wants to be directly in, rather its strategy is to work with original equipment manufacturers (OEMs) alongside potential financing partners who can make devices available to customers on easy payment options.
Takkar said ARPU is "very, very unreasonably suppressed in India", "well below the cost structure of all players" and that tariff hike remains "critical" to improve the overall industry health.
"As everyone is well aware, the telecom industry has suffered tremendously on account of below-cost pricing with heavily discounted unlimited voice and data plans," Thakkar said.
He added that this is despite the fact that market has consolidated to an optimal structure of three private players and one public sector operator. While the tariffs hike in December 2019 was a step in the right direction, ARPUs are still far from being sustainable, Takkar said.
He also said, "We believe the market will be able to absorb further tariff hikes, which are essential to address the structural issues faced by the sector and enable operators to generate reasonable returns on their investments." While regulatory intervention on fixing floor price will help, the company believes it is important that the industry moves in the right direction and "starts to take prices up in any case".
"While we wait for floor price consultation, I think there is an opportunity to increase prices as well. And, we expect that to rise over coming period. That is a sentiment that has been expressed universally in the industry...", Takkar said.
The company has undertaken several market initiatives to improve ARPU, such as driving its 4G and unlimited plan penetration. "We have also launched RedX plan to attract high ARPU postpaid customers offering differentiated services...We have seen strong traction on these plans," he said.
On the funding requirements of VIL, its Chief Financial Officer Akshaya Moondra said the company is awaiting AGR (adjusted gross revenue) order on the period for repayment of dues.
"That will enable us to assess what exactly are our funding requirements going forward... So, with regard to AGR judgement, we will get clarity on what is our funding requirement for serving all these things," he said.
Moondra said the company will also get clarity on what are its additional investment requirements and based on that, it will take suitable action for getting the firm and business adequately funded.
On ARPU, Moondra said that for industry to recover its cost of capital adequately and make some surplus over that, price or ARPU levels of Rs 230 to Rs 250 can yield reasonable return on capital.
Takkar said that while there has been some talk that 2G needs to be stopped, the technology is efficient, offers low-cost services, and provides a "good service option" in certain cases where people using feature phones cannot afford smartphones or do feel the need to use smartphones.
"Those segments of customers should continue to be served by technology and there is nothing wrong with it," he said.
Overtime, VIL expects many more subscribers to migrate from 2G to 4G and has accordingly been making investments into its 4G network.
"With our integration behind us, it is really an opportunity for us to talk openly to customers about the quality of our network and how and why they should be migrated towards 4G network, based on their needs," Takkar said.