In separate statements on Monday, Vodafone Idea and Airtel cited the financial stress in the sector, the current low tariffs and the need to invest in networks to keep up with surging data demand as the reasons for the move. The companies have for some time been saying that higher prices and lower government levies were crucial to improving the health of the sector bogged down by huge debt and intense competition.
They didn’t declare the quantum of the hikes, which some analysts said could be as much as 30-45% in the near term and up to three times the current rates over the next two years.
Jio, the entry of which three years ago offering low tariffs had roiled the market and trigged a price war, didn’t immediately respond to the announcements. It had recently started charging 6 paise a minute for calls made to a rival’s network and removed some low-priced plans to improve its operating performance.
“We understand that Trai (Telecom Regulatory Authority of India) is likely to initiate a consultation for bringing rationality in pricing in the Indian mobile sector, which has been operating at prices that have been eroding the viability of the sector,” Airtel said in a news release.
The telecom sector is highly capital-intensive with fast changing technology cycles that require continuing investments, and hence it is important for the industry to be viable, it said. “Accordingly, Airtel will appropriately increase price offerings in the month beginning December.”
Vodafone Idea, which was the first to announce the planned price hike on Monday, said the government had acknowledged the stress in the sector, weighed by debt of more than Rs7 lakh crore and brutalised by the price wars since Jio’s entry.
“Mobile data charges in India are by far the cheapest in the world even as the demand for mobile data services continues to grow rapidly … To ensure that its customers continue to enjoy world class digital experiences, Vodafone Idea will suitably increase the prices of its tariffs effective 1 December 2019,” it said.
Shares of Vodafone Idea, with 311.1 million subscribers, closed at Rs 4.47, up 21.47% on the BSE, while Airtel, with 280 million customers, ended 4.1% higher at Rs 409.15.
The announcements came after market hours.
“Now is the time for tariff increase and I expect an upside of 30-45% in the immediate term … I don't rule out an upside of 200% on data and voice tariffs over the next 1-2 years,” IIFL Securities vice-president Sanjiv Bhasin said.
Nitin Soni, the director (corporates) at global ratings firm Fitch, said the revenue of Vodafone Idea and Airtel could go up by as much as $500 million (Rs 3,500-3,600 crore) by the fiscal fourth quarter if they increase tariffs by an average 10% and manage to retain their customers.
He said Vodafone Idea’s Ebitda would double by the fourth quarter in such a scenario. The telco reported revenue of Rs 10,440 crore and operating income of Rs 3,347.1 crore for the June-September quarter. It had net debt of Rs 1.02 lakh crore.
At Airtel, Soni expects Ebitda from India mobile services to expand by around $150-200 million by the fourth quarter. The company reported India mobile services revenue of Rs10,981.4 crore and Ebitda of Rs3,991.3 crore in the second quarter ended on September 30.
He, however, expects the degree of an Airtel tariff hike to be a tad lower than Vodafone Idea's, since the Sunil Mittal-led telco has a significantly higher average revenue per user at Rs128, compared with Vodafone Idea’s Rs107 and Jio’s Rs120. Soni, though, cautioned that the upcoming tariff hikes by both telcos could lead to some subscriber churn to Jio.
Analysts said with the price hikes, industry revenue could rise by as much as 10-15%, or roughly $1.5-2 billion, in a year's time.
While the two telcos had been bleeding for a while and had been saying the rates were unsustainable, the trigger for the hikes appear to have come after the Supreme Court order, which backed the government’s stance of including non-core items in adjusted gross revenue. This ruling left the two facing over Rs80,000 crore in dues, and forced them to make provisions for the payments. After this, Vodafone Idea posted a loss of Rs 50,921.9 crore and Airtel, Rs23,045 crore, for the July–September quarter, with both raising doubts about continuing as going concerns in the absence of government relief.
The government, meanwhile, has set up a panel which is likely to suggest some relief measures for the telecom sector. But the two companies have said that the real game-changer for restoring the health of the sector would be price hikes.
"Vodafone Idea can do something like Jio, increase voice tariffs by 6 paise or so without connecting it to IUC (interconnection usage charge). It could reprice all of them, changing headline tariffs without getting into voice and data. Or, just a voice charging in all plans," said Rajiv Sharma, head of research at SBICap Securities.
“For Voda Idea, the increase will be across the board. In smaller package the time, duration could be reduced, and above Rs 500, people don't really look at the benefits,” he said.
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13 Comments on this Story
cyphrnoir343 days ago
This is so funny. It''s like you give out candies for free for almost 3 years and make people addicted to it. Now you say, ''Enough! No more free candies for you. You want ''em, you gotta pay!'' And they really think the people will oblige. They''ll simply move to the new candyman (Jio) in town who artificially created this crisis in the first place to make its move when the opportune time arrives. And that time has come! Dont be fooled by Jio''s claims that they''ll be increasing prices as well. They''ll wait till these foolish old players announce their hike and then undercut them. That''ll lead to another mass exodus of subscribers to Jio and it''ll be the end of Airtel and Voda-Idea. Must say, Mota bhai is a genius. ;-)
Vipin Khandelwal344 days ago
thanks to Vinod Rai and SC for creating mess in telecom sector. their actions help in destroying /bankrupt telecom companies as well as mass job destruction. as per them all big groups of india as well as worlds are fraudster. prompt SC to cancell the licences.
Ramesh Shah344 days ago
THEY DON''T HAVE REALISED AGAINST WHOM THEY ARE TRYING THE STUNTS... THEIR ENTITY WOULD B LOST THE PRICE THEY INCREASE THE JIO AMBANI WOULD REDUCE....... SIMPLE ARETMITCS.....