Telecom companies need another round of tariff hike, say analysts

Any tariff hike is possible only if there is collective effort on the part of all telcos, says research firm Motilal Oswal

Telecom sector needs another round of tariff hike and it is possible if all the three players, Bharti Airtel, Vodafone Idea and Reliance Jio, decide for the same, say analysts.

Lately the market construct has turned highly favourable. Nevertheless, any tariff hike is possible only if there is collective effort on the part of all telcos, research firm Motilal Oswal said.

The firm believes that each telecom company needs to go for a tariff hike for different reasons – Vodafone Idea needs to survive, Reliance Jio needs to justify its high valuations in the recent investments and Bharti Airtel needs to deleverage.

Emkay Research firm said that it has already assumed another round of tariff hike in FY21.

“Tariff hike conversion in revenue growth is vital and till now, Bharti has delivered a strong conversion rate. While we are yet to see the flow-through of the Dec’19 hike for Vodafone Idea, we are expecting it to be lower than Bharti Airtel,” the research firm said.

In order to fund AGR penalty and cash loss, Vodafone Idea requires higher tariff hike and is expected to happen over time.

Voice subscribers make up 48% of Bharti Airtel’s total base and 51% for Vodafone Idea.

On the Supreme Court development in the AGR (Adjusted Gross Revenue) case, the research firm said, "Despite the telecom operators’ inability to furnish bank guarantees, the judges seemed relatively positive about permitting staggered payment of AGR dues, subject to a down-payment of a “reasonable” amount."

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The companies have offered bank guarantees lying with DoT as security to the court. Staggered payment option seems to be getting acceptance while timeline around the same, bank guarantees, quantum of upfront payment still lack clarity.

The three telcos hiked 30% tariffs in December 2019 and at that time Telecom Regulatory Authority of India came out with a consultation paper on floor price.

It highlighted the benefits of forbearance, which offers freedom and flexibility to telcos. It also raised issues involved in fixing the floor tariff, such as the difference in each telco’s cost of delivery, technology, service offerings (voice and data bundles) and methodology to determine the floor price.