A new research report says Vodafone Idea has to increase tariff by 39% to survive – and that will be a bounty for Reliance Jio and Airtel

• The double whammy of low revenue per user and the burden of retrospective payments from India’s Supreme Court has put the future of Vodafone Idea in jeopardy.
• To survive these challenges, Vodafone Idea needs money and for that it may have to increase its average revenue per user by as much as 39% making it less competitive compared to Airtel and Reliance Jio.
• If Vodafone-Idea increases tariffs and Airtel and Jio can follow suit and beef up their finances, and if the former dies, India’s telecom market will become duopoly and in each situation, the consumer will end up paying more for telecom services.

Vodafone Idea’s chances of survival appear bleak. A new research report now suggests that the telecom major may have to increase its average revenue per user (ARPU) by 39% to stay alive. While this could ensure Vodafone Idea’s survival, Reliance Jio and Airtel could end up reaping the bounty.

Subsequently, the Motilal Oswal report dated March 30 estimated that Airtel stock could hit ₹620 in the next one year. This is an increase of 47% from the closing price of ₹421 as on April 2.

According to analysts at the broking firm, if Airtel and Reliance Jio follow Vodafone-Idea in increasing tariffs, the earnings for the two companies, owned by billionaires Sunil Mittal and Mukesh Ambani respectively, will rise significantly.


Vodafone Idea needs a price hike to survive

The report notes that with a 39% increase in ARPU and no significant decline in its market share, Vodafone Idea should be able to fund its AGR obligation which will arise in the next two years.

However, a steep hike tariff could end up hurting Vodafone-Idea more than benefitting, owned by another billionaire Kumar Mangalam Birla. The rising risks to its survival have already taken a toll on the share price, which is down 50% this year so far.


Airtel and Reliance Jio win regardless of Vodafone Idea’s fate

Airtel stands to gain even if Vodafone Idea shuts down. Its strong financial position puts it in a position to gain up to 60% of Vodafone Idea’s subscribers with a 50% revenue share, the report said.

But if Airtel decides to follow Vodafone, its ARPU will be the highest in the industry at ₹249, and what it loses in customers will be made up in revenue and profits.

So at time when Birla’s telecom stock fell 50%, Mittal’s company shares have stayed afloat. Motilal Oswal expects the stock to gain 47% more hereon.


Reliance Jio could increase its earnings by 50%

Reliance Jio, owned by Asia’s richest man Mukesh Ambani, has a similar advantage like Airtel. The current market leader Reliance Jio also stands to gain plenty if Vodafone Idea hikes prices. While its current ARPU stands at ₹163, this could increase to ₹227 if Jio follows Vodafone Idea’s price hike. This would increase Jio’s EBITDA (earnings before interest, tax, depreciation, and amortisation) by 50% - this is higher than Airtel’s increase since Jio has 60% more subscribers than Airtel.


And if Vodafone-Idea perishes, India’s huge telecom market with 1,151 million subscribers currently, and an estimated 220 million more in the next three years, will be entirely controlled by two billionaires — Mukesh Ambani and Sunil Mittal. Consumers will lose bargaining power.

See also:

Mukesh Ambani's Reliance Industries will add ₹25,000 crore to its mammoth pile of debt

Vodafone Idea wants to increase data prices by 10 times - to cover its spectrum dues

Over 450 million users stuck in a limbo as Vodafone Idea, BSNL and MTNL fight to survive

Mukesh Ambani’s Jio disagrees with Airtel, Vodafone on everything except tariffs and transparency