Vodafone Idea, the third largest wireless operator in India on Monday hiked its two entry-level postpaid family plans by around Rs 50. The operator on its website highlighted that the base postpaid family plan has been hiked from Rs 598 to Rs 649. Further, the third largest operator in India also hiked its second-tier postpaid family plan from Rs 749 to Rs 799. The operator had earlier restricted the price hike on its two entry-level postpaid family plans to five circles namely Uttar Pradesh East, Tamil Nadu including Chennai, Kolkata, Maharashtra and Goa. Global research firm CLSA on Tuesday said that the 7% to 9% tariff hike on the two entry-level plans will result in a 1% marginal increase in revenues for Vodafone Idea.
Steep Tariff Hikes Unlikely for Vodafone Idea Says Analyst
CLSA said that the Vodafone Idea and Bharti Airtel postpaid tariffs are already at an 25% premium to Reliance Jio, the largest wireless operator in the country. However, the firm said that the growth in average revenue per user (ARPU) provides opportunities for all the three major telecom operators in India.
Crucially, CLSA said that it sees the sector revenue to hit US$32 billion by 2023, largely driven by the hike in tariffs coupled with the increased data usage.
It has to be noted that Vodafone Idea offers five postpaid family plans priced at Rs 948, Rs 999 and Rs 1348 along with the now revised Rs 649 and the Rs 799 plans. Additionally, the operator also offers seven single user postpaid plans including the Rs 1099, the RedX plan.
Reliance Securities, the broking arm of Reliance Capital on March 16, 2021, said in a report that Vodafone Idea needs a “steep tariff hike” by the end of the 2023 financial year to “survive.” The firm highlighted that the operator paid 13% of its total adjusted gross revenue (AGR) dues. Further, Reliance Securities said that Vodafone Idea needs around Rs 60 billion per year largely for maintenance and for a 10% interest on its overall debt and to cover spectrum dues.
“Tariff hike in the current environment seems unlikely at least till all private players decide to raise tariff,” Reliance Securities said in its report. “Given the competitive environment with a weak third player, there is a need for tariff hike to restore health of the sector, but it remains to be seen who would take the initiative in this regard.”
Analyst Says Capital Infusion Will Not Save Vodafone Idea
Crucially, Reliance Securities highlighted that the third largest wireless operator in India will “continue to burn cash” each quarter without a hike in its tariffs.
“Capital infusion alone without steep tariff hike is unlikely to ensure sustainability of VI’s operation,” Reliance Securities said. “However, only a significant and sustainable increase in ARPU can help VI to survive in the long-term.”
In early March, reports said that Vodafone Idea was unable to sign a binding agreement with Oak Hill consortium due to unresolved issues. The two sides were engaged in discussions for months with the exclusive period for talks extended from January 30, 2021 to February 28, 2021. In mid-March, it was said that Vodafone Idea was in talks with a new set of US based investors.
Reliance Securities said that the low capital expenditure set by Vodafone Idea is “triggering subscriber loss” while a “singular tariff hike could lead to substantial subscriber loss.” The firm said that the subscriber loss witnessed by Vodafone Idea is largely due to the "weak network capabilities and speculation around business continuity.”
Meanwhile, Reliance Securities also highlighted that the “affordable” smartphone set to be unveiled by Reliance Jio in partnership with Google will result in the largest wireless operator welcoming more users from its rivals.
“Jio in association with Google is expected to launch its affordable low-range 4G and 5G phones in India,” Reliance Securities said. “It plans to manufacture 200mn entry-level smartphones in the next two years. Apart from [the] Android operating system and Play Store, these phones will include cheap data packs.”
Reliance Securities said that around 293.6 million non-data users of Vodafone Idea and Airtel can get “easily attracted” to the low cost smartphones from Jio.