The sheer irony of Vodafone Idea leading the roll-out of tariff hikes2 min read . Updated: 01 Dec 2020, 09:48 PM IST
- VI’s lead with tariff hikes risks making it the operator with the highest tariffs despite a weaker network
- The move can also pave way for Jio to expand market share gains, as its tariffs are lower than Airtel, Vi’s
If you have to have a prayer session before raising prices by 10%, then you have got a terrible business," said renowned investor Warren Buffett. Spare a thought for Vodafone Idea Ltd (Vi).
It has the weakest balance sheet among Indian telcos, which has led to inadequate network investments and high subscriber churn. It has been crying hoarse that tariff hikes are needed for a sustainable business model. Its competitor Bharti Airtel Ltd says it agrees completely, but wants someone else to take the lead with tariff hikes.
The reason is simple. Market leader Reliance Jio’s tariffs are already considerably lower compared to Airtel and Vi. If the former stays put with its tariffs, the pricing gap will only increase, making market share gains for Jio even easier.
Vi, meanwhile, has been bravely saying it is willing to take the lead with tariff hikes, which actually risks making it the operator with the highest tariffs despite a weaker network. After considerable thought, and perhaps even a prayer session, Vi has decided to raise tariffs on a couple of its least known postpaid plans, where the risk of losing customers is low.
“Vi must know that customers in these family postpaid plans are loyal and won’t switch. Let’s be clear: they can do this only to some extent in the postpaid segment. Beyond that, customers may not be willing to pay a premium, especially given the issues with network quality. Any misalignment in pricing in the prepaid segment will result in huge market share loss," says an analyst at a domestic brokerage.
Jio, after a record fundraise, is sitting comfortably on the other end of the spectrum. Not too long ago, it had enhanced the value proposition of its postpaid plans by including subscriptions to Netflix, Disney+Hotstar and Amazon Prime. The threat of losing postpaid subscribers may well be the reason Vi’s latest tariff hikes apply only to its family plans, and not on flagship postpaid plans.
The moot question, then, is how this impasse will end. The industry’s coordinated tariff hikes last year, according to news reports, were possible because of a nudge from the government, which did not want Vi to go bankrupt. The government’s thinking now appears to be that there is only so much it can do, and Vi also needs to raise funds and set its house in order. But with Vodafone Plc. showing no interest in investing further in the Indian joint venture, hopes of a revival are running low.
“We believe Vi’s plan to raise about $3.4 billion through a mix of equity and debt is unlikely to restore its competitive position and reverse subscriber losses, as the amount would be insufficient for capex," Fitch Ratings said on Monday. The upshot is that Vi’s market share losses can be expected to continue. Fitch Ratings expects Vi to lose around 15 million subscribers each quarter in the next 12 months. Sadly for the company, with a lower number of subscribers, the extent of tariff hikes needed to break even will be even greater as time progresses.