What Does the Telecom Sector Have in Store for 2022?

From telecom players on the likes of Aircel, Tata Docomo, BSNL, and MTNL, India has come a long way to experience a consolidation wave in the telecom sector with only three leading companies to choose from. Reliance Jio, Airtel, and Vodafone-Idea (Vi) are the only major players left in the industry. Let’s dive in to know what’s in store for investors in 2022!
What Does the Telecom Sector Have in Store for 2022?

The Current State of Affairs

Competition in the telecom sector began to spice up after Reliance Jio’s entry in September 2016 with its predatory pricing, which kept the other companies on their hook! Reliance Jio began garnering customers at the cost of Bharti Airtel and Vodafone Idea.

Bharti Airtel has business interests in Africa as well, which provides some solace to the company from its tightening financials in India. If there’s an entity that is severely affected by Jio’s entry is Vodafone Idea Limited. The company has been incurring losses since, and the Government had to buy a stake in the company to give financial support after the promoters refused to infuse further equity capital into the company.

What’s Next?

After the three debt-laden telcos raised prepaid tariffs by up to 25% in November 2021 to boost their average revenue per user (ARPU), there’s still more to come!

Bharti Airtel’s MD Gopal Vittal said, “Tariffs remain abysmally low in India, and another round of price hikes will definitely happen in 2022, although it won’t in the next 3 to 4 months as the current SIM consolidation caused by the last round of price hikes need to come down”. He further stated that unless ARPUs settle higher at Rs 300 level, telcos like Airtel won’t be able to make respectable 15% plus returns on capital employed (RoCE). For a perspective, Bharti Airtel’s Q3FY22 ARPU stood at Rs 163, up from Rs 143 in Q3FY21.

Outlook For Investors

Even after the two rounds of tariff hikes in July and November 2021, tariffs in India remain the cheapest across the world! Although further hikes will not bode well for consumers due to increased data costs, investors in telecom companies will have reasons to cheer up as it will improve company financials. While investors can directly invest in shares of Bharti Airtel and Vodafone-Idea Limited, those betting on Reliance Jio can do so by lapping up RIL shares.

Other than the proposed tariff hikes, Reliance Jio’s public listing is another event that will keep the investors betting on this sector at the edge of their seats!

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