Unsustainably low tariffs seem to be the real problem with Indian telecom companies

18 May 2022 , 03:09 PM

The tariff increase that Bharti Airtel implemented in November 2021 has enabled the company to increase its net profit by three times in the March 2022 quarter, when compared to the March 2021 quarter. This also shows that one of the real problems that were plaguing top telecom companies was tariffs that were unsustainably low.  

With the entry of Reliance Jio, established players such as Vodafone and Bharti Airtel were hesitant in increasing prices. Competition in  telecom industry then turned into a price-driven one. This resulted in bleeding losses or a sharp reduction in profits for telecom companies.
If Indian telecom companies want to regain their past levels of profitability, they should focus on tariff rationalization. Tariffs need to be increased whenever costs increase. The recent experience has also shown that consumers do not have such a high price elasticity of demand as is believed, in the case of mobile phone and data services. Consumers will pay rational increases in tariffs without switching to competitors. There are switching costs associated with switching to another phone network from the one that one has been using for years.