Vodafone Idea tariff hike possible if followed by Bharti

Even Jio will need a tariff hike to reflect more growth and if all the three players are interested, Jio should not hesitate, says Rajiv Sharma, Head- Institutional Equity Research, SBICAP Securities.

Reports are suggesting that Vodafone-Idea is looking for a price hike. Earlier also, all telcos had gone ahead and said that prices should go higher but at the same time, the first step is not coming in. What do you make of this news?
Tariff hike has been regarded as the single largest catalyst for the whole space and Vodafone is in the process of raising Rs 25,000 crore and for them, the stretched balance sheet and the continuous loss in market share are the two big worries they are living with and trying to address and tariff hike will be a source of funds for them.

A Rs 8-10 increase in ARPU/tariffs will increase the cash flows by half a billion US dollars and definitely they would love to. But very rarely do we see a weakish player in the market deciding the direction of tariffs. It is never the case and unless Bharti and Vodafone come together to announce the next set of tariff hikes, we could see that sustain. If it is only Vodafone and it is not followed by Bharti, then they may have to quickly roll it back as well.

The main deciding factor will be Jio because it already operates at a discount to the incumbents on the tariffs and recently Jio introduced some of the long-term plans with even more discounts. Jio is now looking at postpaid subscribers. They are looking at enterprise and not all sectors in the economy are still fully functional like travel or hotels. We could be a couple of quarters away but I believe this will happen because even Jio has got 30% of its stake with private equity. They will love to see Jio do better and it has to be beyond subscriber growth. So, it has to be a tariff hike. There will be some kind of pressure on Jio but we are a couple of quarters away from such a scenario.

Jio is not just a Reliance entity. There are several other players as well that have purchased a stake. We know Voda will hike prices, Airtel will hike prices but what is the ARPU level both these companies would be comfortable working with?
Voda would be looking at Rs 225-230 ARPU and they are currently at around Rs 120. So we are talking about a big increase for them to get back to business. But this looks very stretched. Bharti can easily go to Rs 200 without tariff hikes if it could hypothetically shift most of its customers from 2G to 4G where the basic entry plans are roughly at around Rs 200 levels ARPU. Bharti’s performance over the last three quarters suggests that they are working on migrating from 2G to 4G.

As far as Jio is concerned, they have one digital piece which is a little medium to long term. They have post paid at enterprise and home broadband. But they are small on the volume side. So they will not give you a big click. Even Jio will need a tariff hike to reflect more growth and if all the three players are interested, Jio should not hesitate.

Remember, Jio took a tariff hike last year when this whole AGR phase was there and all the telcos were supposed to pay a lot of money. If it could take it at that time, today when the resolution has come in and in a couple of months Voda is able to raise debt, Jio will definitely take it. It is just a matter of time -- maybe a couple of quarters and we would see this happening.