Vi poised to lose users as it moves to hike tariffs

With talks of another round of tariff hike gathering pace and top executives at cash-strapped Vodafone Idea Ltd (Vi) indicating the company could be the first among the three largest private telecom players to do so, analysts believe it will need the support of the industry for such a move, else it will end up losing more customers.

Vodafone Idea’s chief executive, Ravinder Takkar, in October had said the telco will not shy away from raising prices and will set a precedent for others to follow. This, even as it continues to lose millions of wireless customers every month, meanwhile rivals Reliance JioInfocomm Ltd and Bharti Airtel Ltd add more subscribers to their networks.

According to Telecom Regulatory Authority of India (Trai) data, Vodafone Idea lost 1.2 million wireless subscribers in August, shedding customers for the tenth straight month, but lower than the previous months hit by the covid-led disruptions.

Though Vodafone Idea and Airtel agree that the prices of voice and data services are unsustainable, and their average revenue per user (Arpu) needs to go up to Rs 200 initially and to Rs 300 eventually, analysts said both must raise tariffs around the same time.

“Indian tariffs remain unsustainable, they need intervention. Not just for us, but for the overall health of the sector. We all know Vodafone needs it (tariff hike) and we need it, everyone needs it to be able to have more money to put into networks, lay fibre, get into 5G and for auctions,” Sunil Mittal, chairman, Bharti Enterprises, told Mint.

Mittal said affordability will not be a concern even after increase as pricing in India will remain the cheapest in the world, adding that the current rates are below the input cost.

At best, Vodafone Idea can increase tariffs in a few circles where the gap between the quality of its network and that of the competition is minuscule or in markets where the telco has not lost many subscribers yet. However, a pan-India hike will only be possible if Airtel follows suit, said Rajiv Sharma, head of equity research, SBICAP Securities.

“On a standalone basis, Vi cannot sustain tariff hike as it may end up losing more subscribers. Tariff hike has to be on an industry level (all three players raising within 45 days) and, if not, then it may have to roll back the increased prices due to acceleration in subscriber loss,” said Sharma.

A tariff hike will also have to be supported by improvement in quality of network and services that would retain high-paying customers, which has been Vi’s focus as it wants to reduce the cost of maintaining 2G network.

Despite a loss in overall wireless customer base in August, Vodafone Idea added 4.6 million mobile broadband subscribers, the highest among all telcos, as it continues to convert a large number of its 2G customers to higher-paying 4G users.

“Tariff hike could lead to loss of subscribers if Vodafone does not invest in infrastructure and network to improve its services,” said a telecom analyst, requesting anonymity.

If one goes by the numbers, Airtel has been adding towers to its network to improve the quality of services, while Vi has been reducing them. “Data volumes have risen more than 50% for Airtel in the past one year versus Vodafone, which has seen a 25% growth,” the analyst said. Hindustan Times