Vodafone Idea bites the bullet on tariff hike as firm struggles to pay dues

Cash-strapped Vodafone Idea (VI) has taken a lead in hiking tariffs by 6 to 8 per cent as it struggles to retain customers and clear its pending dues. However, the company has moved cautiously by raising the tariff only in limited circles such as Uttar Pradesh. While the hike comes into immediate effect, there has been no announcement.
In the post-earnings call in October, Vodafone Idea managing director Ravinder Takkar had said the company would not shy away from taking the first step in raising tariffs. Bharti Airtel Chairman Sunil Mittal had also said last week that there was an urgent need to increase rates.

The latest move, even if it is symbolic, is the first rate hike after the one announced end of 2019.

The Voda Idea share price rose 2.45 per cent to close at Rs 10.05 on BSE. On the news of tariff hike by Voda Idea, even Bharti Airtel’s stock went up 3.5 per cent to close at Rs 479 on Tuesday.

The tariff hike of Rs 50 has been effected under Vodafone Idea’s RED family pack plans which currently cost Rs 598 and Rs 749, respectively. However, the rates for the remaining eight post-paid plans remain unchanged.

These packs are not offered in all 22 circles and only those customers affected by the tariff hike have been informed.

Analysts believe that the company needs a tariff hike as it is in a perilous financial condition and stares at bankruptcy in the absence of stern measures.

“It could not have kept waiting for others to blink first,” an analyst said, adding that the range of hike doesn’t matter as at this point in time any increase is fine.

However, according to Rajiv Sharma, head of research, SBICAP Securities, "The hike in two high post- paid family pack plans will not move the needle as there are few customers who avail it. Nonetheless, it is a smart move by Vodafone and gives an assurance to investors. The real financial impact will be seen when Vodadone hikes rates in 28-84 days pre-paid plans which is availed by bulk of its customers.”

He said that it was not clear if Airtel would immediately follow Vodafone in hiking tariffs.
When contacted, Bharti Airtel and Reliance Jio declined comment on the possibility of a tariff hike.

Last December, all three telecom firms had raised tariffs by 25-30 per cent.

This tariff hike by Vodafone Idea was inevitable due to its huge liabilities towards the Union government in the form of dues linked to adjusted gross revenue (AGR).

The Department of Telecom (DoT) estimates the firm's AGR dues at Rs 58,254 crore. The company has paid Rs 7,854 crore so far.

Vodafone Idea’s net loss narrowed to Rs 7,218 crore in the second quarter of financial year 2021 on account of lower provisioning but flat revenue, and subscriber loss. Limited 4G conversions continued to weigh on its performance.

In the same quarter last year, Vodafone Idea had posted a record Rs 50,921 crore net loss due to Rs 25,677-crore-plus provisioning for adjusted gross revenue dues.

According to the latest data from the Telecom Regulatory Authority of India (TRAI), Vodafone Idea’s subscriber base has shrunk to a little over 300 million against Bharti Airtel’s more than 322 million and Reliance Jio’s 400 million plus.