Consumer Friendly: Fresh spectrum purchase to further delay tariff hike

Consumer Friendly: Fresh spectrum purchase to further delay tariff hike

As it is Bharti's tariffs are around 15-20% higher than Jio's and it has stated in the past that it would only raise tariffs if Jio does it first.As it is Bharti’s tariffs are around 15-20% higher than Jio’s and it has stated in the past that it would only raise tariffs if Jio does it first.

The recent spectrum auctions which saw Reliance Jio and Bharti Airtel emerging as major buyers and fortifying their holdings, is likely to delay tariff hikes further, thus increasing the pain for Vodafone Idea. Vodafone Idea spent the least and bought the least in the auctions and though its overall spectrum holding is good due to the merger in 2018, its constraint regarding network investment would continue in the event of delay in tariff hikes.

Most analysts feel that since Jio has increased its capacity with the fresh buys from the auction, its first focus would be selling it by gaining more subscribers. As it is the company is trailing Bharti Airtel for the past several months in terms of net subscriber addition. Bharti Airtel has also acquired fresh spectrum in B circles, where its marketshare is currently weak, so it would also focus on scaling up here rather than go for tariff hikes.

Related News

As it is Bharti’s tariffs are around 15-20% higher than Jio’s and it has stated in the past that it would only raise tariffs if Jio does it first.
“Reliance Jio’s hefty spectrum spends of Rs 57,122.65 crore and Bharti’s approach of acquiring more spectrum in its weaker markets do not bode well for the tariff environment. Jio may prioritise selling excess capacity created due to its spectrum purchase, thus delaying tariff hikes. Further, with Bharti acquiring over 50% spectrum B-circles where its market share is low, its focus on market share gains is clear,” brokerage Jefferies wrote in its report upon conclusion of the spectrum. “Given that Jio has the highest tower and fiber on network, spectrum purchase will enhance its capacity. Jio is likely to focus on selling excess capacity as marginal cost of unit data/voice is negligible for telcos. Moreover, Bharti Airtel’s spectrum acquisitions in sub 1GHz in Maharashtra and MP — the key markets of Vodafone Idea — and focus on B-circles reflect its focus on gaining share,” it added.

The view is shared by BofA Securities, which said, “The initiative for tariff hike should largely come from Vodafone Idea as it is the most in need of it. Jio management is unlikely to take a knee-jerk reaction of raising tariffs just because it spent more in auctions; while in medium-term Jio is keen to raise tariffs, we believe in the near term, its focus could be gaining subscribers. Both Jio and Bharti, in our view, will focus on improving their market share in the near term given their stronger balance sheets as compared to Vodafone Idea.”

Prior to the auctions, Vodafone Idea management had said that it would not wait for other telecom players to raise tariffs and would increase the same when it feels the time is right.

However, analysts then also had maintained that it’s easier said than done and it is difficult for Vodafone Idea to hike tariffs at a time when other players like Jio and Bharti Airtel are not doing it. “We note that any material tariff hike would require Jio taking the lead given Airtel already clarifying that it would not take the lead in tariff hike given its market share gains. We believe that the next price hike could be delayed given there is no urgency for Jio whose pace of market share gains has slowed down,” Credit Suisse had written then.

As is known, spectrum auctions began on March 1 and concluded the very next with operators committing to buy a total of 855.60 Mhz of airwaves worth Rs 77,814.80 crore. Of this, the upfront amount operators would pay the government would be Rs 27,000 crore-Rs 20,000 crore in the current fiscal and balance Rs 7,000 crore in the next fiscal as some spectrum would be made available in the next financial year.

Though the government stated that considering the pandemic and financial stress of the industry, the outcome was satisfactory and more than its internal estimate of revenues of around Rs 45,000 crore, from objective accounts, what was sold was far below what was put up for sale.

Consider the numbers. A total of 2,308 Mhz of spectrum was put on auction which at reserve price was worth Rs 3.92 lakh crore. Thus only 37% of airwaves got sold and two bands, 700 Mhz and 2500 Mhz, drew a blank. The 700 Mhz drew a blank even in 2016 due to high reserve price.

Reliance Jio bought the maximum spectrum, 488.35 Mhz worth Rs 57,122.65 crore. Bharti Airtel was next, buying 355.45 Mhz with a total outflow of Rs 18,698.75 crore. Vodafone Idea bought the least, 11.80 Mhz with a total outflow of Rs 1,993.40 crore.

Do you know What is Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India, Expenditure Budget, Customs Duty? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Leave a Reply

Your email address will not be published. Required fields are marked *