Inflation bites into telecom revenue growth

High inflation is having an impact on the usage of mobile phone services, which is set to restrict the sequential revenue growth of telcos in the April-June quarter to 2-4%, the slowest in the last nine months.This is because the rise in smartphone prices coupled with the increased the cost of mobile services after the last winter's tariff hikes is slowing down 4G subscriber additions and also forcing subscribers to use less data, say analysts.They added that while telecom as an essential service has been relatively resilient, high inflation is starting to hurt consumption demand across categories and mobile services too are no longer immune. "Upgrades is a key driver for telecom industry revenue increase, (but) this is slowing after increased mobile tariffs and smartphone costs, which is why, telecom industry revenue growth in 1QFY23 is likely to be lower at 2-4% on-quarter compared to the much stronger 8% on quarter revenue growth in 4QFY22," Kunal Vora, head of India equity research at brokerage BNP Paribas, told ET.Telecom sector revenues grew at 1%, 4.5%, 4.2% and 8% sequentially in the first, second, third and fourth quarters of FY22 respectively. Revenue growth was particularly robust in the March quarter when the full beneficial impact of the sharp tariff hikes taken last November/December had hit home. But the first signs of the inflation impact became palpable after both Bharti Airtel and Vodafone Idea (Vi) lost as many as 3.1 million and 3.8 million active users respectively in April, which analysts blamed on higher 4G rates and increased entry-level smartphones prices at around Rs 10,000 (from Rs 6,000 previously), amid the continuing semiconductors shortage and rising chipset prices.Analysts, though, said operators may be compelled to consider another tariff hike later this year, even at the risk of losing more customers and lower usage. This, since telcos are unlikely to absorb rising input costs caused by high inflation for a prolonged span.Quickening inflation is reckoned to have pushed up telco payouts towards bulk diesel charges and staff costs while network capex costs too are estimated to rise around 5% on-year following sharp rupee depreciation against the dollar."Telcos in India still have the ability to pass on the higher input costs, caused by inflation, to consumers with another tariff hike anytime in the next 12 months," said Nitin Soni, senior director (corporates) at global ratings agency, Fitch.He, though, expects operators to limit the next tariff hike to around the 10-15% level as anything higher could sharply impact consumption and customer growth.