Vodafone Idea, the third largest telecom operator currently “facing a cash gap” is set to witness more pressure following the new postpaid tariffs unveiled by Reliance Jio, ICICI Securities said in a report. According to the report released by ICICI Securities on Wednesday, the cash gap witnessed by Vodafone Idea is due to the adjusted gross revenue (AGR) verdict. The third largest telecom operator in India is required to pay its AGR dues and the spectrum dues annuity from the end of 2022 financial year.
Vodafone Idea Requires Over 90% Tariff Hike to Bridge Cash Gap
ICICI Securities highlighted that Vodafone Idea is required to make a tariff hike of over 90% from its current levels to bridge the annual cash gap.
“The current need to protect postpaid subscribers could, therefore, pressurise its cash flows further,” ICICI Securities said in its report.
Reliance Jio, the largest telecom operator in India on Tuesday introduced its JioPostpaid Plus plans in multiple tiers in the range of Rs 399 to Rs 1499. While Vodafone Idea does offer a base plan at identical price point to JioPostpaid Plus plan, the largest telecom operator offers more data on its base plan. Further, the JioPostpaid Plus plans also offer an array of benefits including a complimentary access to Netflix Mobile subscription, Amazon Prime membership and Disney+ Hotstar VIP subscription.
ICICI Securities highlighted that Vodafone Idea had a postpaid subscriber base of 2.15 crores, representing 7.8% of its total base at the end of its first quarter in the current fiscal year. The firm said that Airtel in the same time period had a postpaid subscriber base of 1.46 crores representing 5.2% of its total subscriber base.
“Also, with [a] higher proportion of postpaid base, it is more vulnerable to churn,” ICICI Securities said in its report. “Therefore, this move does create additional pressure on VIL survival.”
Incumbents Required to Spend Around Rs 2000 Crores to Match New Jio Postpaid Tariffs
Crucially, ICICI Securities said that the incumbents including Vodafone Idea and Airtel could lose out to Reliance Jio unless they match the offers provided by Reliance Jio.
“We see the offering having potential to drive at least some churn from incumbents, unless they match the OTT offers,” ICICI Securities said in its report. “Matching of the offering, on the other hand, could result in additional annual costs to Airtel and Vodafone Idea (VIL).”
The firm said that Vodafone Idea and Airtel will have to additionally shell out Rs 1800 to Rs 2500 crores to match the postpaid benefits offered by Reliance Jio.
“There is the higher element of corporate connections and already existing connections, which might be at lower tariff,” the firm said in its report. “Thus, the actual financial burden/impact of this move is difficult to ascertain.”
ICICI Securities said that Reliance Jio’s move on Tuesday “creates a new layer of tariff based competition in the segment that was so far, unchallenged and lucrative.”
“While both Airtel, VIL, are exposed to this risk of churn, the pressure on VIL will be more,” the firm said in its report. “The theme of prepaid tariff hike in near term also remains questionable.”
Meanwhile, CLSA, a capital market and investment group in a research note also highlighted that incumbents can “match offers” provided by Reliance Jio on its new postpaid plans. CLSA said that the incumbents can match the offers provided by Reliance Jio as the OTT benefits offered on the JioPostpaid Plus plans are largely restricted to single screen.
The firm said that a 10% loss of postpaid subscribers will result in Airtel taking an 1% to 2% hit to its consolidated revenues. Similarly, CLSA said that Vodafone Idea will face an 2% to 4% hit on its revenues if it loses 10% of its postpaid subscriber base.
It also has to be noted that the JioPostpaid Plus plans also offers “WiFi calling in India and abroad” along with “in-flight connectivity for Indian travellers travelling abroad.” Further, the top-tier JioPostpaid Plus plan priced at Rs 1499 also provides “unlimited data and voice” in the USA and UAE.