Analysts believe that Vodafone Idea (Vi) will find it difficult to raise tariffs after the general election due to their price-sensitive customers.
A survey by BofA Securities found that 42% of Vi users are against sharp tariff hikes. According to the survey, many Vi users are sensitive to price changes, with 42% saying they might switch to cheaper plans or cancel their secondary SIM (Vi connection) if tariffs increase significantly. Only about a third of Vi users would be okay with a tariff hike of up to 10%.
The survey also showed that only 12% of users consider Vi their primary mobile connection, while 53% use Reliance Jio and 35% use Bharti Airtel as their main SIMs. In contrast, fewer Bharti Airtel and Jio customers (25-29%) are opposed to a 20-25% tariff hike.
Vi’s CEO, Akshaya Moondra, mentioned that the next round of price hikes would not heavily impact entry-level plans but would target customers who use more data. He believes that unlimited tariff packages are not ideal, and those who consume more data should pay more. Currently, 42% of Vi’s user base are price-sensitive 2G users, compared to 28% for Bharti Airtel. Jio only has 4G and 5G users.
Nuvama Institutional Equities reported that Vi plans to upgrade 2G users to 4G and implement multiple tariff hikes in the coming years to boost its average revenue per user (ARPU) and double its annual operating income (Ebitda) to Rs 35,000 crore by 2025-26. This increase is crucial for addressing Vi’s upcoming debt obligations.
In the March quarter, Vi’s ARPU rose slightly to Rs 146, driven by higher entry-level plan prices in some markets and an increase in 4G data subscribers.
The joint venture between the UK’s Vodafone and India’s Aditya Birla Group has minimized concerns about SIM consolidation following a potential 20-25% tariff hike after the elections. They argue that the impact of dual-SIM consolidation has lessened with each round of price increases.
SIM consolidation occurs when users reduce the number of SIMs they use, either sticking to their primary connection or choosing a new preferred provider after a price hike. This usually leads to a drop in the total number of mobile connections.
Recently, Vi raised Rs 20,075 crore through equity funding and is in talks to borrow up to Rs 25,000 crore from banks and financial institutions, along with an additional Rs 10,000 crore through non-fund-based facilities. The targeted Rs 50,000-55,000 crore funding will be used over the next three years to expand 4G coverage, increase 4G capacity, and roll out 5G in key markets. This investment is essential for Vi to stay competitive with Jio and Bharti Airtel, which have already launched nationwide 5G networks.
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