Vodafone Idea, Airtel get relief from tariff hikes, but still Jio gains the most tariff
Jio tariff hike

The tariff hikes announced by Vodafone Idea Ltd and Bharti Airtel Ltd over the weekend have been much higher than street estimates. So much so that it will help Airtel's mobile business in India regain profits before taxes, after several quarters of losses.

In the case of Vodafone Idea, the losses will be greatly reduced. But given the rapid pace of its market share losses, it would need to do much more to retain the gains from the rate hike.

The biggest winner, by far, is Reliance Jio Infocomm Ltd. Analysts at JM Financial Institutional Equities estimate incremental quarterly revenues of ₹ 2,400 crore and ₹ 2,100 crore, respectively, for Airtel and Vodafone Idea as a result of rate increases.

Jio tariff hike

But in the case of Jio, who has said he will increase tariffs by 40% without giving details, JM analysts expect incremental quarterly revenues of up to Rs. 3,900 million.

The incremental revenues are compared with the income reported in the September quarter, assuming there are no changes in the respective subscriber base of the three companies.

These greater gains for Jio and the concerns surrounding Vodafone Idea are also reflected in the reaction in the street. The market capitalization of Jio's parent company, Reliance Industries Ltd (RIL), increased by around Rs ₹ 22,650 million on Monday, while Airtel and Vodafone Idea's won ₹ 9,370 million rupees and ₹ 2,730 million rupees, respectively .

The reason why Jio earns more is because Airtel and Vodafone Idea have left postpaid tariffs intact, presumably because tariffs in this segment are already much higher than prepaid. And the postpaid segment represents approximately 30% of the income of these companies.

Jio barely has postpaid subscribers in his network, which means that a much larger proportion of his income base is affected by the increase in rates.

In addition, Jio has stated that it will provide its customers with 300% higher benefits compared to its competitors. Potentially, this can result in an increase in the pace of your market share gains.

 Jio's revenue market share has increased from 13% in fiscal year 2018 to 34.2% in the first six months of fiscal year 20, according to data collected by JM Financial. While Airtel has kept its stake intact at around 30%, Vodafone Idea's market share has fallen from 38.2% to 29.5%.

One of the most reasons for this is often that Jio's plans have offered a stronger price-value equation.

In the past, when the owners tried to offer rate plans with a price-value equation similar to that of Jio, the latter had responded by further reducing rates and claiming that it would always provide customers with plans that are 20% cheaper.

Jio tariff hike

Even in the current scenario of increased tariffs, Jio is likely to place his tariffs at much more attractive levels than the competition to keep pace with his market share gains. In addition, the truce of tariffs throughout the industry has included increases in voice-only plans, a segment where Jio is almost absent.

This may well give the RIL group company a better chance of gaining subscriber participation with its JioPhone offer for phone users with features. When Jio announces its new rate plans later this week, there will be greater clarity about its strategy for the smartphone and feature phone segments.

The company that runs the greatest risk of losing subscribers remains Vodafone Idea, given its relatively weaker infrastructure. While rate increases will certainly give the company a firm respite, for example, your cash reduction rate will be reduced, you need to do more to retain your subscriber base.

Jio tariff hike

Vodafone Idea needs to consider an infusion of funds to increase its network capabilities and provide effective competition. Of course, much also depends on the final outcome of the dispute with the government related to adjusted gross income (AGR).

While a postponement will certainly help, the future of Vodafone Idea depends on many other things also happening, and on the company's ability and willingness to take full advantage of this sudden reversal in the fortunes of the telecommunications sector.