Bharti Airtel, Vodafone Idea planning next round of tariff hikes in September/October

"We are looking at minimal tariff hikes in the beginning. We plan to stagger it over a period of time across plans. In select tariff plans, we may not hike at all. For instance in the tariff plans where the effective hikes were 25 percent and above in December, we won't look at any hike at all," said a senior executive from Vodafone Idea.

Telecom operators had undergone a tariff hike last year which was effective from December 2019. The hikes were done starting at 10 to 40 percent in some tariff plans.

"We believe tariff hike will be necessary for long term sustainable growth. However, before we finalise the details and pass it on to customers, we are awaiting the Supreme Court verdict on the staggered payment of Adjusted Gross Revenue (AGR) dues. In the best case scenario, we are prepared for 15 years versus the 20 that the department of telecom had sought. But even in that scenario, we will need a tariff hike to improve ARPUs in the long term. Add to that in the absence of a decision on floor pricing, a tariff hike will be needed," said another source that did not want to be named.

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Sources added that the decision on hikes will be taken by September but may be passed onto customers only by October-December 2020.

Brokerage firms believe a tariff hike is needed and around the corner:

A report by SBI Caps analyst, Rajiv Sharma said another round of tariff hike is likely soon. "We believe another round of mobile tariff increase is likely over the next couple of quarters and market share consolidation is seen as another trigger for the same. In addition to this, Bharti will continue to benefit from every 2G to 4G migration, and Jio by adding more of high quality smartphone users (plan upwards of Rs 200)," the noted said.

"Jio will be the deciding factor for any tariff hikes to sustain, while Vodafone Idea or Bharti may initiate the increase in tariffs in our view. We don’t see any concerns around Jio not subscribing to any proposed hikes as Jio now is more focused on: a) value creation via its digital platforms, and b) ecosystem approach, both of which are medium term catalysts. Any tariff increase in the near term may help Jio in addressing investments in digital and 5G," the noted added.

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​A note by Jefferies also seconds the possibility of a tariff hike. It said, "Vodafone Idea's 1QFY21 revenues of Rs 106 billion were the lowest post-merger, despite sharp tariff hikes, reflecting its weaker franchise. ARPU trends changed as Jio outperformed Bharti (7 percent vs 2 percent QoQ ARPU growth) after six quarters. However, Bharti's cumulative ARPU growth post tariff hikes in December 2019 at 16 percent remains higher than Jio's 9 percent and Vodafone Idea's 5 percent ."

"Vodafone Idea's 6 percent QoQ ARPU declined during 1QFY21 reflects its higher share of voice subscribers that were impacted most by the lockdown. After a pause of two quarters, Jio's market share gains and Vodafone Idea's market share losses restarted. Vodafone Idea's dire 1QFY21 results indicate that either the sector will become a duopoly or will witness hefty tariff hikes. In either case, Bharti Airtel will be a beneficiary," Jefferies noted said.

Axis Capital said, "Vodafone Idea had Rs 514 billion balance AGR dues at end of Q1, after payment of Rs 68.5 billion, while it had only Rs 34.5 billion in cash (excluding margin deposits). It has further paid Rs 10 billion in AGR dues in Q2, with Rs 504 billion balance still pending. Given that it already has net debt of Rs 1,155 billion, it may be a stretch to make substantial payment upfront or make payment over tenure of 10 years in a staggered way. This may require introduction of floor pricing/ tariff hike and other relief measures from government.​"