Can Airtel, Vodafone Idea Afford To Hike Tariff And At What Cost?

In a recent research report, the rating agency ICRA reiterated that even though the competitive intensity has come down after the last tariff hike brought about in December 2019, and now because of the enormous pressure mounting on these telcos as AGR payout date nears, the tariff hike seems inevitable for incumbents, said experts.

And the other reasons why telcos will be bound to go for a tariff hike are for spectrum purchase, regularize share to the centre as well as auction installments which begin FY23. A sustainable and sizeable ARPU [average revenue per user] expansion is critical from the telcos perspective," said ICRA in the report.

Pricing comparison for Jio/Vodafone Idea and Bharti Airtel

For the latest Jio's Rs. 399 offering in the post-paid segment is 20% cheaper than Airtel's plan and offers the double data together as against Vodafone's Rs. 399, that comes loaded with other bundled services including OTT content. In all probability the plans for postpaid offering will remain intact and in case if rivals go for a hike then it will see subscribers moving to other players offering competitive rates.

Jefferies previous report on September 23 suggested that Vodafone Idea's 23 million subscriber base would move as the company's service quality gap widens and this shall be well leveraged by Jio, which disrupted the telecom sector with its economical offerings.

In the prepaid segment the famous 84 day and 28 day plans of Airtel are 8 percent and 25 percent higher than Jio. And so more hikes would mean a threat to their customer base. But "They have no other option but to increase tariffs because of the pending AGR payments," says the expert cited above. Now AGR dues have to be cleared in 10 installments starting FY23 with first upfront installment to be made by March 31, 2021.

And if the obligation has to be met only by pricing the tariffs higher, the ARPU will have to be moved from ARPU of Rs. 114 in Q1 to Rs. 275. So, this can likely be achieved by capital infusion from promoters as well as cutting down on capital expenditure.

Now Airtel which has so far managed to maintain its position how it will likely come out in terms of tariff hike in order to meet its financial obligations that it owes to the government without impacting its customer base.

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