Vodafone Idea and Airtel need tariff hikes, AGR moratorium might not be enough, say analysts
- Analysts say that the government will have to do more if it wants to help sustain
Vodafone Ideain the mid-to-long term.
- For Vodafone Idea to survive, a substantial hike in tariffs is necessary.
- The four-year AGR dues moratorium has eased the liquidity crunch in the sector, but the government will have to set floor tariffs for a tariff revival in the sector.
AdvertisementVodafone Idea and
To recall, the three telcos – Airtel, Vodafone Idea and
At the outset, the package benefits Airtel and Vodafone Idea the most. It’s especially critical for the latter, which is fighting for its survival and running on fumes, with a cash balance of just ₹920 crore at the end of the June quarter and debt worth ₹1.9 lakh crore.
But the average revenue per user (ARPU) -- a measure of how much each user contributes to the telecom company every month -- remains on the lower side. Analysts say tariff hikes are necessary, and they are especially critical for Vodafone Idea.
Airtel is the market leader both in terms of active users, as well as the ARPU, meaning it’s in a better position that every other telco in the country – even Reliance
Vodafone Idea’s low ARPU, combined with the loss of lakhs of subscribers every month, could prove fatal for the telco.
Here’s where analysts want the government to step in.
“The above reforms only address the liquidity stress in the sector and does not solve the elevated leverage levels in the sector. Sustainability of the sector is still predicated on tariff revivals -- we believe that [the] government needs to implement more structural reforms,” stated a report by JM Financial dated September 15.
The report further states that this can be done by the government in two ways:
- Introducing floor tariffs across the sector.
- Setting up a mechanism for sustainable tariff hikes in the future.
A JP Morgan report dated September 16 states that while these telecom reforms address near-term liquidity challenges for Vodafone Idea, they won’t be enough to improve the telco’s situation in terms of capex (capital expenditure) to improve network quality. This, the report states, will require either a capital raise, or a substantial tariff hike.
“Specifically on Vodafone idea, it is unlikely to salvage the company’s competitive position given its subscriber losses, declining average revenue per user (ARPU) and insufficient cash generation to fund interest cost,” he told Business Insider.
Airtel, Vodafone Idea and Jio welcome telecom relief package, but analysts are divided on whether it is enough
Indian government dials M for moratorium – Airtel, Vodafone Idea get a four-year relief on AGR dues
Government picking up a stake in Vodafone Idea ‘might be a remedy worse than the disease’, say experts
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