The Indian rating agency Crisil said in its statement on Wednesday that the telecommunication companies need to boost their average revenue per user (ARPU) by at least 25 percent in the next year to be sustainable, which would result in another round of tariff hikes. It said the returns on capital employed are "abysmally low" for telcos at present and also considering the Supreme Court ruling on Adjusted Gross Revenue (AGR), which has created huge liabilities.
Apart from the tariff hikes, which were last done in December 2019, the telcos will need to up the number of users opting for the more expensive 4G offerings and also bundle plans with content, it said, adding that the industry can invest in 5G only through ARPU growth. At present, return on capital employed (RoCE) needs to move up to 10 percent level from the 3 percent level in FY20, it said, adding that had it not been for the SC's AGR ruling, the Return on capital employed would have increased to 7 percent by end of the financial year 2021 and moved up further to 9 percent by the financial year 2022.
"Telcos have a compelling reason to push ARPU up 25 percent over the next 6-12 months to achieve a sustainable RoCE of 10 percent, given their abysmally low returns at present and the increased liability on account of AGR dues," the rating agency warned.
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