India’s cash-strapped telco Vodafone Idea may soon increase tariffs for its voice and data services by 15-20% within the next two months to improve its financial situation. The development is likely at a time when the telco is seeing regular subscriber churn due to bad network-related issues.
“The company is likely to increase tariffs even as telcos wait for the regulator to fix floor prices. The other person said Vi could hike rates as early as in December,” a company source was quoted as saying by the Economic Times.
People familiar with Vodafone Idea’s plans said that the telco is also considering raising tariffs by as much as 25%, but is aware of the fact that the implementation could be difficult at one go.
Industry analysts, however, believe that an increase in tariffs is unlikely to change Vodafone Idea’s fortunes since it is the only telco which has seen 3% decline in revenue after the December 2019 tariff hike. Airtel and Jio, on the other hand, witnessed 24-25% revenue growth.
Jefferies, in its recent note, said that Jio hasn’t been able to increase its subscriber base in the second quarter due to the last round of tariff hikes, which may deter the Mukesh Ambani-led telco to hike tariffs again. “…this may dampen Vodafone Idea’s prospects of a revival.”
Vodafone Idea (VIL) lost 8 million subscribers in the last quarter to 271.8 million. Airtel and Jio added 14 and 7 million subscribers in the September quarter, respectively.
VIL’s 4G net additions were lowest in the quarter as compared to Airtel and Reliance Jio.
Deutsche Bank Research said that Vodafone Idea’s subscribers are not leaving due to inferior experience, but due to being price sensitive, especially after December’s price increases.
“We think this is probably especially the case with 2G users upgrading to 4G. In such a situation you would recommend a company narrow the pricing gap, or provide promotions to those upgrading to 4G. Unfortunately for VIL, it Is difficult to do either, as the first lowers revenues and the second lifts network costs and CAPEX requirements,” it added.
Vodafone Idea’s average revenue per user (ARPU), a key performance metric, stood at Rs 119 ($1.60) at the end of the second or July-September quarter. In comparison, Airtel and Jio managed to increase their respective ARPUs to Rs 162 ($2.17) and Rs 145 ($1.95).
In October, managing director and chief executive officer, Ravinder Takkar said that Vodafone Idea won’t shy away from increasing the currently “unsustainable” mobile tariffs. “We’ve taken the lead on hiking tariffs before (in December 2019) and won’t shy away from doing it again and are confident others will follow us as the current rates are unsustainable and pricing needs to improve quickly,” he told analysts in just after the second quarter results.
“Ongoing consultations around floor price (for data rates) doesn’t stop anyone from hiking tariffs, but the timing has to be right, but we can assure you that the tariff hike decision is not far away,” he had said.
Analysts said that the struggling telco needs to consider consumer sentiment and their “ability to absorb” tariff hike before deciding on timing of the move.
BoFa Securities, in a note, said that the telco needs to consider its improvement in network quality and hence churn going down else it could lose more subscribers. “With VIL in 2Q calling claiming that network integration is done & its speeds are fine, we believe tariff hikes could be happening soon.”
The publication said that India’s second largest telco Bharti Airtel may follow Vodafone Idea in raising prices for telecom services. Both telcos will closely watch rival Reliance Jio’s moves and calibrate their rates accordingly.
Airtel CEO Gopal Vittal has already said that it will not be the first telecom operator to hike tariffs. He, however, told analysts after the second quarter results that the telco will instantly follow its peers, as it also agrees that current rates are unsustainable.
Vodafone Idea is in dire need of funds to clear its adjusted gross revenue (AGR) dues of over Rs 50,400 crore ($6.81 billion) and invest in its 4G network. It is currently in talks to raise up to Rs 25,000 crore ($3.38 billion) through a mix of equity and debt.
“The telco (Vi) would also need to raise rates to improve financials and drive confidence in potential investors,” another person told the publication.