Voda Idea, Airtel have room to hike tariffs if Jio raises rates: Analysts
Jio is likely to be very careful about a tariff hike, as the pricing gap between it & others has narrowed.
“A potential, upcoming 15% price increase” by Jio on the back of its previous 15% price rise —courtesy, its recent move to charge for outbound calls to other networks — gives “Airtel and Vodafone Idea the headroom to increase prices by an average 30%,” Credit Suisse said in a note.
Analysts though said Mukesh Ambani-led Jio is likely to be very careful about a second-round of tariff hike, given that the gap on discounts/pricing between it and the older carriers has already narrowed since it started charging for some outgoing calls.
Jio — whose disruptive entry three years ago with dirt-cheap rates had sparked off a bruising and protracted price war — said on Tuesday it would raise tariffs, if directed by the regulator, in a manner that does not hurt data consumption or growth in digital adoption. Its announcement came a day after Vodafone Idea and Airtel said they would raise tariffs next month.
In a report, Jeffries said, “the key thing to watch is Trai’s consultation paper on pricing which Jio discussed,” adding that the planned tariff hikes (by the three telcos) would have a material impact (on the sector) “only if they are significantly above 20%” coupled with “relief measures” from the government.
Citi Research said Jio’s move is “a material turning point for the sector,” and signals the long-awaited beginning of “pricing recovery,” though the extent of gains will depend on “the quantum of hikes and the government’s relief measures being discussed by the panel of secretaries”.
Voda Idea shares closed nearly 17.5% higher at Rs 7.07 on BSE while Airtel’s dipped marginally (0.46%) to Rs 437.25 on Wednesday. Shares of Reliance Industries, Jio’s parent, closed 2.47% higher at Rs 1,547.05.
Credit Suisse estimates Airtel and Voda Idea’s average revenue per user (ARPU) “increasing by 55% to Rs 198 and Rs 166 by FY22,” citing the “government’s focus on the sector’s financial health and Jio’s participation in the same”. Airtel and Vodafone Idea reported ARPUs of Rs 128 and Rs 107 in the September quarter of FY20, respectively.
Morgan Stanley said “Jio’s intent to raise tariffs” after Airtel and Vodafone Idea suggests “the industry may be going into self-repair faster than expected”.
“Announcement of possible tariff increases by all three private operators is a big positive surprise and has potential to alleviate stress in the industry,” said the US brokerage.
The older carriers have for a while been saying that higher tariffs and lower government levies are critical for reviving the telecom industry that is weighed down by over Rs 7 lakh-crore of debt and fierce competition.
Analysts said the tariff hikes, initiated by the two older carriers, were driven by a recent Supreme Court order that backed the government’s stance of including non-core items in adjusted gross revenue (AGR). The top court’s October 24 ruling has left Vodafone Idea and Airtel facing nearly Rs 81,000 crore in dues, which they need to pay by January-end. This has forced them to make provisions, widening Vodafone Idea’s losses to a record Rs 50,921.9 crore in the September quarter, and Airtel’s to Rs 23,045 crore.
Morgan Stanley said the cashflow profiles of the (older) telcos could “significantly improve” if the government comes out with “reasonable relief measures” such as “a waiver of AGR-related dues and deferment of spectrum payments for the next few years”.
The telecom ministry though told Parliament on Wednesday that the government is not immediately considering waiving penalties and interest on the non-payment of license fee on AGR by carriers, or extending such payment deadlines.
The two most affected carriers though are planning to file review petitions later this week.