The government and the industry must look beyond the relief package. Five years down the line, this relief package would not make a lot of difference since it is only a short-term measure for the companies. The only major operator that’s in need of a relief package is Vodafone Idea (Vi). As we have mentioned in the past, while Bharti Airtel can benefit from the relief package, it doesn’t desperately need it. The relief package is a short-term measure and while it can help Vi immediately, it doesn’t solve the core problem for the sector.
The reason why the telecom sector including Vodafone Idea is in a grim position is because of low returns on investment. Any business that doesn't make sizeable profits can’t reinvest into business because there’s just not enough money. This creates more long-term problems than one can think of.
The only way the sector and Vi can solve this issue is by going for “sizeable tariff hikes”, says Edelweiss.
Tariff Hikes Coupled With Relief Measures Will Set Vodafone Idea for the Future
Sizeable tariff hikes for the 4G prepaid customers will ensure that companies are earning more out of each of their customers. The rise in the average revenue per user (ARPU) will help Vodafone Idea in narrowing losses initially and then with earning profits.
Further, the relief measures will ensure that Vodafone Idea’s cash flow position isn’t stressed anymore which will mean the company can comfortably invest in its 4G networks. As per Jefferies, if Vodafone Idea doesn’t invest in its networks soon, it will lead to the downfall of the company as all of its subscribers might start migrating to the networks of Jio and Airtel.
However, there are questions about the relief package for the telecom sector. While the Department of Telecommunications (DoT) is trying to propose the package to the cabinet, it is worth noting that the centre has never stepped in to flush money from its budget for saving a private company. Since there’s no precedent of such a thing happening, it is unlikely that it will happen this time.