Even if the three operators raise tariffs by only 10%, losses in the industry will reduce significantly
Apart from better tariffs, telcos also need a breather on the debt front, and clarity on that as well
Mumbai: Bharti Airtel Ltd and Vodafone Idea Ltd have added about $5.5 billion and $1.25 billion, respectively, to their market capitalization in the past three trading sessions alone.
Just last week, they reported record losses and it seemed like at least one of these companies was staring at the end. Evidently, things have gotten so bad for the industry that help from the government has become increasingly certain.
But it looks like telcos have been asked to help themselves before the government can. Before news of any relief package, Vodafone Idea, Bharti Airtel and surprisingly, even Reliance Jio Infocomm Ltd, have announced that they will raise tariffs within the next few weeks.
For Reliance Jio, which has become the market leader thanks to aggressive, price-based competition, a truce over tariffs seems uncharacteristic.
Besides, being the only telco to report profits in recent quarters, it has suggested in the past that there is no pressing need for it to raise tariffs. “There are evidently bigger forces at play," said an analyst at a domestic institutional brokerage firm on condition of anonymity.
The transformation in the industry is striking. In the past, the incumbents and Reliance Jio have dragged each other to the Competition Commission of India, citing anticompetitive practices. Their latest decision to hike tariffs in tandem may raise anticompetition issues of a new order.
But given the dire straits the industry is in, and given the hole this was expected to cause in the government’s finances, anticompetition issues aren’t exactly at the top of anyone’s mind.
“After years of wealth destruction, the industry will now be headed in the right direction," said the analyst quoted above. “I would be surprised if the tariff hikes being talked about will be anything less than 20%," he added.
In Vodafone Idea’s case, this means that its Ebit (earnings before interest and tax) loss of ₹2,962 crore in Q2 can reduce by about 64%, while for Bharti Airtel, instead of an Ebit loss of ₹1,145 crore in its India mobile services division, there would be a profit of around ₹750 crore instead. Quarterly revenues in both cases are around ₹11,000 crore.
If tariffs and revenues increase by a much lower 10% even, losses would fall by 32% and 83%, respectively, for Vodafone Idea and Bharti Airtel’s India mobile division.
It’s little wonder investors are so excited.
But if Bharti Airtel and Vodafone Idea gain so much by raising tariffs, why wait until December?
“It looks like the incumbents want greater clarity from the telecom regulator on the official view on pricing and about the extension of the interconnection usage charges regime, which works effectively as a floor on voice tariffs," says the analyst quoted above.
Besides, apart from better tariffs, telcos also need a breather on the debt front, and need clarity from the government on that front as well.