The recent Telecom Tariff Hike was comparable to what money would have earned in Bank FDs..

Interest charged by banks and financial institutions is like a premium on your idle money, or in simpler terms, it's the rent you pay for letting your money change locations from your pocket to theirs.

Recently, telecom companies hiked their tariff plans after a three-year pause, much to the chagrin of many Indians. However, these recent hikes, ranging from 17-19%, coupled with the natural growth in data usage thanks to the 5G wave, are expected to push the industry average revenue per user (ARPU) to a decade-high of Rs.225-230 by fiscal 2026, up from Rs 182 in fiscal 2024, according to CRISIL Ratings. Photo: The India Times.

CRISIL Ratings also noted that, along with a reduction in capital expenditure due to fewer network investments following the completion of 5G roll-outs and limited spectrum renewals, the return on capital employed (RoCE) will improve. This will support deleveraging in the industry, thereby enhancing credit profiles. Prior to this, the telecom companies had raised their mobile tariffs in November 2021.

Now the question remains: was the telecom Tariff hike too steep. Let's examine:

Suppose we have Rs.1000, how much time would it take to double the amount with an existing interest rate of 8% for one year FDs? ====================

To find out how long it takes for an investment to double with an 8% annual interest rate, we can use the formula for compound interest:

 A = P (1 + r/n) ⁿᵗ ------ (1)

where:

- A,  is the amount of money accumulated after ( t) years, including interest.

- P, is the principal amount (the initial amount of money).

- r, is the annual interest rate (decimal).

- n, is the number of times that interest is compounded per year.

- t, is the number of years the money is invested for.

Here:

A = Rs.2000

P = Rs.1000 

r = 0.08 (or 8% per year)

n = 1 (We have taken it as compounded annually. If it is compounded monthly or weekly the figure would be different)

We need to solve for "t" (The time period the principal sum gets doubled). Putting the values in the equation (1) we get:

2000 = 1000 (1 + 0.08/1)ᵗ,

=> 2 = (1+ 0.08)ᵗ

Taking natural logarithm (ln) of both sides:

ln (2) = t * ln (1.08),

=> t ~ 9 years.

It will take approximately 9 years for Rs.1000 to become Rs.2000 at an 8% annual interest rate, compounded annually.

This means if anyone had kept the money in Banks it would have earned at ~26% (25.97%) interest in 3 - years. 

Remember we have taken PLR for calculation. The companies takes loan at a  much higher intes rate. So, considering those cases, was the telecom Tariff hike too high or less or fine ? 

Do let me know your views, either in this website or in the socal media platforms where I am active (Facebook and Twitter basically).