VODAFONE IDEA LOOKS VULNERABLE AS TARIFF HIKE MAY SEND 2G USERS TO JIO 4G PLANS, SAY ANALYSTS

Vodafone Idea has just turned more vulnerable with the recent tariff hike posing the threat of a potential churn in users to Reliance Jio for lower cost.

The beleaguered private telecom service provider was the last to raise the tariffs, though it lagged behind Bharti Airtel and Reliance Jio in terms of network coverage. It will take another six months to improve, analysts said.

Jio's move to keep tariffs unchanged for its 4G feature phone users under JioBharat and JioPhone plans may help increase its subscriber market share, potentially driving Vodafone Idea's 2G subscribers. Analysts believe Vodafone Idea will struggle to retain its 2G users.

As of the quarter ended March 2024, the telco had 86.3 million non-4G subscribers.

Vodafone Idea and Bharti Airtel’s tariff hikes range from 11–20 percent across plans, while Jio has raised the tariff by 11-25 percent, except for JioPhones.

“Among the telcos, we find VIL more vulnerable as its network coverage will take around 6 months to improve and it may continue to lose users, especially if users look for better coverage when they are paying more,” BoFA Securities said in a note.

Vodafone Idea, in a tariff hike announcement, said changes in entry-level plans were nominal, and that it will continue to support entry-level users. The telco hiked these plans by 11 percent.

“Staying true to its philosophy of supporting entry-level users and progressively linking higher prices to increased usage, changes in entry-level plans are nominal… Vi is planning significant investments over the next few quarters to further enhance the 4G experience as well as the launch of 5G services,” the telco said in a statement.

Analysts at HSBC Global Research indicated that Vodafone Idea's market share losses are likely to persist due to its lagging network investments compared to its competitors. They, however, noted that Vodafone Idea's recent capital raise will help improve the network coverage and capacity in the coming quarters, which should slow the pace of its market share decline.

For Vodafone Idea, this is not a turnaround quarter as network investments are yet to pick up, BoFA Securities said.

“But we expect the net adds loss to slow down to -1.8 million in 1Q compared to 2.6 million in 4Q. We estimate VIL’s revenue to be -0.5 percent QoQ and EBITDA margins to be largely flat QoQ at 41 percent,” the brokerage said.

JP Morgan said that Airtel and Vodafone Idea’s 15 percent average tariff hikes excluding 5G premiumisation impact are lower than Jio’s 20 percent (13-25 percent and 46 percent 5G premiumisation) average tariff hike.

“The impact of the tariff increases should flow through largely throughout 2Q and 3QFY25. Airtel’s subscriber mix should drive an ARPU expansion of 15 percent versus 18 percent on Jio, excluding the impact of 5G premiumisation. The impact of 5G premiumisation also is likely to be higher for Jio vs Airtel given the higher increase in entry plans and higher 5G availability and propensity to pay up,” JP Morgan said.

With the tariff hikes, telcos have taken the initiative to cut unlimited 5G data to users only with plan at 2GB per day or above. This, compared to 5G unlimited data, was starting from the 1.5GB per day plan and notably, was rather popular; hence, it led to a downgrade for users from 2GB a day and above plans to 1.5GB a day in the past 12 months.

“We anticipate certain upgrades for 5G users from the 1.5GB/day plan to the 2GB/day plan, which should help drive ARPUs higher,” ICICI Securities said in a separate note.

Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.

2024-07-02T05:07:03Z dg43tfdfdgfd