Telecom tariff hike expected to benefit sector, boost its financials

The price hikes announced by telecom operators on Sunday is expected to lead to a sharp jump in the operating profit of Bharti Airtel, Vodafone Idea, and Reliance Jio. The new plans across prepaid segments of Bharti Airtel and Vodafone Idea are higher on average by 40 per cent and come into effect on December 3.Operating profit of Bharti Airtel, Vodafone Idea to increase by Rs 7,000- 9,500 crore.

Even as the telecom firms are expected to benefit from the rise in tariffs, the brokerage firms were expecting more hikes to follow. Bharati Airtel and Vodafone India Ltd  announcing 30 percent (average) higher prices for lower-end plans offering 100 and 200 MB data came in as a surprise.These plans are largely targeted at feature phone users, and they are not expecting any tariff hikes for this segment.The magnitude of the pre-paid unlimited plans, which was higher by about 22 percent on average versus  the existing 28-day plans and 33 percent on average for 84-day. 

The hike in tariff come in the backdrop of record losses reported by both Bharti Airtel and Vodafone for the quarter ended September 30 due to huge provisions towards dues owed to the telecom department for adjusted gross revenue (AGR). Vodafone Idea posted a net loss of Rs 50,922 crore in the second quarter of financial year 2019-20, whereas Bharti Airtel’s net loss came in at Rs 23,045 crore.Vodafone Idea and Bharti Airtel have an outstanding debt of more than Rs 1 lakh crore each.

Reliance Jio has not outlined its plans as yet, but said that its tariffs will be 40 per cent higher and bundled with 300 per cent more benefits to the customers.