No call yet: Vodafone Idea in a bind as Jio, Bharti delay tariff hikes

With Reliance Jio and Bharti Airtel playing the waiting game and being in no hurry to raise tariffs, Vodafone Idea has been caught in a bind. While Jio and Bharti can afford to delay taking a decision on hiking tariffs, the same cannot be said about Vodafone Idea. While companies are not commenting on their strategy and timing of announcing a hike in tariffs, analysts have noted that any delay on the part of Vodafone Idea is going to cost the company dearly.

Telecom operators were hoping that the Telecom Regulatory Authority of India (Trai) will come out with a regulation fixing floor price for tariffs which would take care of the hikes. However, with chances of such a move fading with time – with a new chairman taking charge only earlier this month, if at all such a move materialises, it would take quite a long time – the ball is back in the operators’ court.

The last time the three operators had raised tariffs by up to 50% was in December, 2019.

“We do not think Vodafone Idea (VIL) can raise enough risk capital to survive without a price hike for too long. The viability challenge facing VIL is real and massive. A moratorium here, a deferral there, a small cash inflow from Indus stake sale to Bharti Infratel, some inflows from fiber monetisation, residual contracted cash inflow of a billion dollar from Vodafone Plc pertaining to regulatory liabilities, etc do not change the big picture,” Kotak Institutional Equities wrote in a recent report.

According to Kotak, VIL’s average revenue per user (Arpu) needs to at least double from the current levels in the next 3-4 years for the company to have any shot at surviving and staying competitive in the market. In this backdrop, according to the brokerage, VIL’s strategic choice should be rather clear – gun for price increases as quick as possible.

“The pandemic has delayed the pace of price rises, but we are now at the point where prices most likely have to rise around 20% in the next 1-2 months for VIL to be able to make its AGR payment due in March,” New Street Research wrote in its report.

Quite in contrast, Jio and Bharti can afford to play the waiting game and both do not seem to be looking at hiking tariffs anytime soon.

The dilemma, therefore, before Vodafone Idea is that it is not sure that if it takes the first step towards announcing a tariff hike, the other two operators would follow suit. According to analysts, it makes sense for Bharti Airtel and Jio not to hike tariff soon as they do not have any cash flow mismatch and a hike at this point of time would end up helping Vodafone Idea revive itself.

As is known, Jio is currently the number one operator on both subscriber and revenue market share front. A status quo approach suits it better at the moment. Analysts at Kotak point towards such a strategy. “We believe Jio would prefer a status quo on pricing….Jio taking price increases allows the third player (read VIL) a fighting chance at reviving itself,” it wrote in its report.

Same is the case with Bharti Airtel. The company is in a position where it does not need to initiate price hikes immediately as it has no pressing cash flow-mismatch or leverage issues. Competition wise it may also feel that any price hike at this point of time would help Vodafone Idea more than itself.